Mark Dampier: Don't be afraid of new funds if they're driven by experience

 

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The Independent Online

Many investors wish to wait for an established track record before putting their money in a new fund.

However, I feel if it is run by an experienced manager, there is really no reason to wait. Neil Woodford, for example, has an impressive, 25-year track record managing UK equities. While some commentators have suggested delaying an investment in his new Woodford Equity Income Fund, I see no advantage in postponing exposure to such a successful investor.

Similarly, Chris Rice is an experienced investor in European stocks, having managed money in the region since 1992. He recently founded Sanditon Asset Management, along with Tim Russell, and will shortly launch the Sanditon European Fund. He is one of the managers we backed when we first launched the Wealth 150 in 2003, and I am happy to invest in his new venture from the start.

Our analysis suggested European shares were exceptionally good value when they reached their post-crisis low point in 2012. European stock markets have recovered well since then, although more recently recovery has ground to a halt. Negative sentiment towards the region has, in many cases, driven share prices to levels which fail to reflect their profitability and growth potential. However, economic news has little bearing on the success of many European companies.

They produce goods and services which are desired globally. Nestlé and Heineken, for example, sell goods people buy again and again, through good times and bad, while people the world over aspire to own BMW cars. In the industrial world, firms such as Siemens are synonymous with quality and reliability.

While economic growth in the eurozone ground stopped during the second quarter of 2014, European companies as a whole reported earnings increases after three years of steady declines.

Relative to the US, Europe is the cheapest it has been throughout his career, according to Mr Rice. He invests based on where he feels the economy is within the business cycle, reflecting the view that economic activity fluctuates around a long-term trend. He therefore looks to invest in defensive companies, such as pharmaceuticals, during a slowdown, and companies able to benefit from an improving economy, such as retailers, during a recovery.

The "powerhouse of Europe" – Germany, has already experienced a good, stock-market run and Mr Rice does not feel the shares of German companies currently represent good value. As such, his initial portfolio will be focused on southern Mediterranean countries, such as Spain, where economic data is continuing to show improvement. He suggests with interest rates poised to fall further in the eurozone, economic growth could receive a further boost, benefiting companies such as Spanish telecoms provider Telefonica.

In the near future, he feels an element of flexibility will be required with his business-cycle approach to investing. In a post-quantitative easing world, global stock markets have been affected by more than just the business cycle, with the injection of cash contributing to higher asset prices. With traditional "safe haven" investments, such as bonds, currently expensive in Mr Rice's view, there may not be many places to hide in the next recession. He therefore feels the fund's ability to hold elevated exposure to large, defensive companies, could prove valuable in the future.

The fund will aim to achieve capital growth, with a target of 2 per cent over the return of the FTSE World Europe ex-UK Index. Mr Rice has an excellent track record with his previous fund at Cazenove (now Schroders) delivering growth of 240 per cent over his 9½-year tenure in comparison to 174 per cent for the average fund in the sector.

In conclusion, don't let the tag "new fund" worry you – provided it is run by an experienced manager, utilising their tried and tested approach. Launching a new fund means Mr Rice is starting with a blank sheet of paper and is able to cherry-pick what he feels are the best opportunities across the European stock markets. By launching the fund within his own investment company, he is highly incentivised to perform well – the more money he makes for his investors, the more he makes for himself.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds in this column, visit www.hl.co.uk

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