IMA Europe ex-UK sector funds with more than 10% weighting to Spain
| Fund |
Weighting to Spain % |
Return over 1-yr % |
| AEGON European Equity |
11.40 |
-1.90 |
| Allianz RCM European Equity |
13.10 |
-1.70 |
| Cavendish European |
10.40 |
2.70 |
| CIS European Growth |
10.75 |
-5.00 |
| Invesco Perp European Equity |
13.99 |
-2.20 |
| Invesco Perp European Equity Income |
14.28 | -3.70 |
| Newton Continental European |
10.11 |
-1.30 |
| Newton European Higher Income |
13.45 |
-1.80 |
| Stan Life Inv European Equity Income |
10.30 |
4.00 |
| Standard Life TM European |
12.48 |
3.30 |
| UBS European Equity |
12.60 | -1.80 |
Source: Financial Express Analytics
Of the ten funds with an exposure of greater than 10 per cent to the country, only two have beaten the benchmark in the past year; Standard Life Investments European Equity Income and Standard Life TM European. Even then, they only returned 4 per cent and 3.3 per cent respectively to their investors, lagging behind sector stars BlackRock European Dynamic and Jupiter European, both of whom returned over 20 per cent.
The study comes after rating agency Moody's put Spain's Aa1 sovereign credit rating on review for a possible downgrade, citing concerns over the country's mounting debt and its financing needs in 2011.
The ratings agency also expressed concerns over the central government's control of local authorities in achieving structural improvements in the country's general finances.
However, European managers claim the Spanish downgrade provides a buying opportunity.
"The economic difficulties in Spain will be annoying for the big companies listed there, but not cataclysmic. So we’re heading to buy, rather than sell," Neil Dwane, manager of the Allianz RCM European Equity Income fund.
He added: "In the peripheral countries, equities with Ireland, Portugal or Spain in the title are being penalised because of these greater macro worries, but that valuation doesn't take into account their performance or strong balance sheets."
Dwane points to Santander, which is perceived as high risk because it’s a financial stock, but that has less than 30 per cent of its earnings from Spain.
Rajesh Shant runs the Newton Continental European and European Higher Income funds. He says the company view is very different to the macro outlook in Spain.
"I'm avoiding Spanish banks, property and financials, as well as those companies with too much domestic exposure. That said, companies which have an international reach are set to benefit from lower wage price inflation in Spain, and the better pool of workers they will have to pick from," he said.
Shant's largest holding is Spanish telecoms giant Telefonica.
Speaking on his underperformance, the manager says he has favoured companies with strong balance sheets, while the market has rewarded those with weaker cash flows.
"This is a one-off, as those companies are getting a boost due to low interest rates. Risk trading is starting to wear off, though, and I expect my portfolio to benefit in the longer term."
Jaime Ramos Martin, manager of the Standard Life European Equity Growth fund doesn't think Moody's warning is cause for concern.
"The downgrade is backwards looking, and has already been priced in. It's a confirmation of what’s already happened," he said.