Don’t miss the European gravy train, warns Darwall
The FE Alpha Manager says that the macroeconomic problems affecting the eurozone are largely irrelevant to the business of finding undervalued stocks with a bright future.
By Mark Smith, Senior reporter
Thursday June 28, 2012
Investors waiting for the dust to settle in the eurozone are likely to miss out on up to 20 years of strong stock market returns, says Jupiter’s Alexander Darwall
The ongoing eurozone crisis and the impact that the uncertainty has had on markets has led swathes of investors to sell-up their European assets.
However, the FE Alpha Manage
r, who heads up a number of open- and closed-ended funds focused on the region, says that investors who are waiting for the crisis to be resolved before investing are failing to recognise the disconnect between the corporate sector and the economy.
“Fortunately what happens by way of outcome on the macro front is of no relevance to how companies will perform,” he said. “I prefer to spend time looking at businesses rather than contemplating what or what might not happen at the next eurozone summit.”
, manager of the GAM Star Continental European Equity fund agrees:
“Europe’s woes are well publicised and many investors currently consider European equities as ‘uninvestable,’” he said. “However, we reject this simple consensus; Europe’s economies are not uniformly poor and the asset class is undeniably cheap.”
He added: “Investors are unwise to equate the troubles in European economies with the corporate sector. Corporate revenue streams coming from outside Europe have grown steadily over the past 20 years, and are expected to continue to grow in coming years. This globalisation of revenue has been driven by emerging markets and many European companies are now truly global.”
Tom Tuite Dalton, research analyst at Oriel Securities, recommends Darwall’s Jupiter European Opportunities Trust for investors who want to take advantage of attractively priced European companies.
“Calling markets is seemingly a mug’s game, calling good companies, whilst not easy, is something for which Darwall seems to have a peculiar knack,” he said.
“Buying Jupiter European Opportunities does not give exposure simply to Europe since earnings are generated from a wide variety of other geographic regions too. It does however provide exposure to European management which Darwall generally rates highly, and is seen as a reflection of Europe’s diversity and long international trading history.”
According to data from FE Analytics, Darwall’s fund has returned 238 per cent over the last decade compared to 111 per cent from the average European trust.
Performance of fund versus sector over 10 yrs
Source: FE Analytics
Tuite Dalton also points out that Darwall’s exposure to southern Europe, the region worst affected by the debt crisis, is low.
“Intriguingly, the one Spanish holding in the portfolio, Amadeus, is up 15 per cent year to 31 May compared to the IBEX index which has fallen by over 30 per cent,” he explained. “The reason is that Amadeus is a specialist airline tech company which generates the vast majority of its earnings outside of Spain and is not sensitive to euro volatility.”
The analyst has picked the trust over Darwall’s open-ended Jupiter European
fund because it is trading at an attractive discount of 9 per cent to net asset value. This gives investors the added benefit of a likely narrowing once sentiment recovers.