High quality stocks have been disproportionately hit by tensions in the eurozone, according to MAM’s Simon Callow, who has taken advantage of the recent dip in the market to prop up his equity exposure. 

In May, fear drove the FTSE 100 to record its biggest monthly decline since February 2009, while at the same time two-year German government bond yields went into negative territory. 

"We now find ourselves in the situation where there is significant risk premium on offer to those investors willing to embrace it and tolerate short-term volatility," said Callow, who heads up the CF Midas Balanced Growth fund.

"Ultimately, we believe that European policy makers will 'do the right thing'. It is just a question of how hard they need to be pushed before they act." 

"As asset allocators, we are beginning to perceive compelling value in European, Japanese, Asian and emerging market equities. Consequently, we are gradually increasing our equity exposure, funded by realising profits on some of our hedging instruments."
 

Fenner

"This is a world leader in reinforced polymer technology, which provides exposure to an attractive structural growth story," said Callow.

"The company benefits from increased production of commodities such as coal and also manages several niche businesses in fields such as medical that earn high returns on capital."

"Slowing Chinese industrial growth has negatively impacted sentiment towards the stock, but actually has little impact on its operating performance, thus providing an excellent entry point into the shares."

Performance of stock over 1-yr



Source: FE Analytics

Fenner has fallen by more than 22 per cent since the beginning of March, which means it is now in negative territory over a one-year period in spite of a strong run in late 2011 and early 2012.

Thirty-three funds in the IMA unit trust and OEIC universe hold Fenner in their top-10, including Aberdeen UK Smaller Companies and Invesco Perpetual UK Smaller Companies Equity.


Persimmon

"We’ve also added Persimmon, the lowly geared UK house builder, which recently announced its intention to return significant sums of cash back to shareholders over the next 10 years," continued Callow. 

"The amount of cash to be returned was equivalent to its market capitalisation at the time of the announcement."

Persimmon is listed on the FTSE 250 and is particularly popular with UK mid cap funds. It is a top-10 position in Threadneedle UK Mid 250 and Franklin UK Mid Cap. The company is down 9.57 per cent since the beginning of March. 


SAB Miller

"We’ve also added a position in international brewer SAB Miller, which is benefiting from burgeoning growth in emerging markets and in particular Africa," said Callow. 

"However, like the others, it has been affected by the recent sell-off." 

The stock appears in the top-10 holdings of 24 funds in the IMA unit trust and OEIC universe, including the FE five crown-rated McInroy & Wood Emerging Market portfolio, as well as Anthony Nutt’s £2bn Jupiter Income fund. 

The company has had a stellar three years, up 113.87 per cent over the period. However, the recent dip in the markets since March has seen the stock lose around 5 per cent.


Aggreko

David Jane, former head of equities at M&G and who now heads up the TM Darwin Multi Asset fund, agrees that there are a number of bargains available at the moment. 

"The summer is a good time to look at beaten-down stocks, because at this time of year everything tends to shut down and stay flat," he said. 

"I’ve already got a big position in Aggreko but I’ve been adding to it following recent falls. The company makes diesel-based generators and is a big beneficiary of the Olympic Games and global demand in general." 

"It’s been weak of late, but I see no real reason why it’s fallen," he added. 

In the last two weeks the FTSE 100 company’s share price has declined by almost 8 per cent. It appears in the top-10 holdings of 13 open-ended funds, including FE Alpha Manager James Thomson’s Rathbone Global Opportunities portfolio. 


Kansas City Southern

"This is another cyclical stock I’ve been adding to," Jane continued. "It’s a freight railway company, which has been traded off in the recent downturn. It’s gone from $80 to $67 recently and I’ve been buying in the dips."

"In the next phase of global growth when this political mess is sorted out, this is the kind of stock which will do well and it’s at very low levels," he finished.