The crisis surrounding Greece’s future has dominated the headlines over the past few weeks with many warning about the potential for disastrous financial contagion if the country were to leave the eurozone.
The furore revolving Greece has already put pressure on global equity markets, as the likes of the MSCI Europe ex UK, FTSE All Share and S&P 500 are all down more than 3 per cent over the last month.
Performance of indices over 1 month
Source: FE Analytics
The chances of a ‘Grexit’ have also increased recently, as the country voted the increased austerity measures that would come attached to billions of euros in financial support.
Of course, many investors will view the recent negative press as a signal to be more cautious within their portfolios as Stephen Macklow-Smith, manager of the JP Morgan European Investment Trust, explains.
“If Greece leaves the eurozone, the immediate consequences for its economy may be desperate,” Macklow-Smith said.
Nevertheless, there are fund managers who are positioned for a far more positive outcome from the Greek crisis. Therefore, if investors want to follow Warren Buffett’s advice of “buying when others are fearful”, here we look at four funds from both the European and global sectors which are geared into a European recovery.
Neptune European Opportunities
One of the most aggressively positioned IA Europe ex UK funds is Neptune European Opportunities, which is headed up by FE Alpha Manager Rob Burnett.
According to FE Analytics, the £520m fund is overweight financials with banks such as Banca Popolare dell’Emilia Romagna, Banco Popolare, Banca Popolare Di Milano, UniCredit and Credito Valtellinese all featuring in its top 10.
As the list of names above suggests, Burnett also has big overweights in peripheral economies such as Italy and Spain.
“This is an ambitious fund that at times can take aggressive positions,” Square Mile, which has awarded the fund an ‘A’ rating, said.
“When these positions come good, returns can be impressive for holders of the fund; conversely the potential for return shortfall is significant. Mr Burnett seems well suited to this approach and he is a conviction investor who takes input from both macro and micro economic sources.”
FE data shows the fund has been a top quartile performer in the sector over the past 10 years with returns of 135.50 per cent, beating its MSCI Europe ex UK benchmark by more than 45 percentage points in the process.
However, due to the fund’s aggressive positioning over recent years, Neptune European Opportunities sits in the bottom quartile over one, three and five years thanks to its poor performance in 2012, 2013 and 2014.
It has a clean ongoing charges figure (OCF) of 0.85 per cent.
FE Alpha Manager Barry Norris’ FP Argonaut European Alpha fund is another which is positioned to benefit from a pick-up in sentiment towards the continent, according to the FE Research team.
It points out that the manager analyses the economic environment from both global and country levels to determine whether companies’ earnings forecasts are realistic while, at the same time, assesses analysts’ forecasts to see whether good or bad news has been overdone.
This leaves Norris with a concentrated and high conviction portfolio, which is currently biased towards mid and small-caps, has chunky positions in the likes of Italy, Ireland and Spain and is overweight cyclical sectors such as industrials, consumer discretionary, materials, energy and IT.
“Norris has spotted opportunities arising from the current geo-political environment,” the FE Research team said. “Because markets overreact to any piece of news while company fundamentals do not change, the possibility of earnings surprises increases and that is what Norris is after.”
“Positioned to benefit from economically-sensitive businesses earning their profits domestically, such as Italian asset managers, the risk profile of the fund has increased and larger swings in value are now likely.”
The £320m Argonaut fund has been a top decile performer in the IA Europe ex UK sector since its launch in May 2005 and has doubled the returns of its MSCI Europe ex UK benchmark in the process.
Performance of fund versus sector and index since launch
Source: FE Analytics
Unlike the Neptune fund, FP Argonaut European Alpha’s outperformance has been consistent in both rising and falling markets as it has beaten the sector in seven of the last 10 calendar years. Its OCF is 0.91 per cent.
Depending on their aims and objectives, investors may wish to spread risk by opting for a global fund which is overweight European equities rather than buying a fund that sits in the IA Europe ex UK sector.
The most extreme example in the IA Global sector is Hugh Sergeant’s R&M World Recovery fund, which currently holds more than 50 per cent in the region.
Using the same strategy that has pushed Sergeant’s R&M UK Equity Long Term Recovery fund to the top of the IA UK All Companies sector, the manager has created a portfolio of bombed-out companies that he thinks are due a turnaround.
Currently, Sergeant counts European stocks such as Mediaset, Braas Monier Building Group and Anima Holdings as top 10 positions. While Square Mile rates Sergeant, it says his fund is not for the fainthearted.
“This fund is a little like a whisky drinker who prefers his tipple not only neat, but at full cask strength. Investors need either an iron constitution or to recognise that a little may go a long way,” Square Mile said.
This approach has certainly worked so far, though. According to FE Analytics, the £195m fund has been a top decile performer in the highly competitive sector since its launch in March 2013 with returns of 49.98 per cent. Its MSCI AC World benchmark has returned just 21 per cent over that time.
Performance of fund versus sector and index since launch
Source: FE Analytics
However, its high weighting to Europe and China mean R&M World Recovery has been a bottom decile performer over the last month with hefty losses of 7 per cent. Its OCF is 1.24 per cent.
Turning to the IA Global Equity Income sector now and if investors want a less risky option than the R&M fund but still want overweight exposure to Europe, they may wish to consider Artemis Global Income which is headed-up by the highly rated Jacob de Tusch-Lec.
FE data shows the £2.3bn fund has more than 40 per cent in European equities and holds more cyclical stocks such as CTT Correios de Portugal, Aena and Ferrovial as top 10 positions. That weighting to Europe has also been steadily increasing over the past nine months, though the manager has been rotating his exposure recently.
“Our European bond proxies (equities with bond-like characteristics) did very well early in the year, as Mario Draghi’s announcement on quantitative easing sent bond yields sharply lower,” De Tusch-Lec said in his most recent note to investors.
He added; “Then, as economic news improved and inflation moved higher, we began to reduce our exposure – particularly to European real estate.”
De Tusch-Lec launched Artemis Global Income in July 2010, over which time it has been the best performing portfolio in the sector and has beaten its benchmark by more than 40 percentage points with returns of 102.13 per cent.
Performance of fund versus sector and index since launch
Source: FE Analytics
Though the fund hasn’t witnessed a severe falling market yet, it has outperformed in each calendar year since 2011 and is the sector’s best performer so far in 2015. It has also had the best risk-adjusted returns, as measured by its Sharpe ratio, in the sector since launch.
Artemis Global Income yields 3.4 per cent and has an OCF of 0.84 per cent.
