Mark Dampier: Europe prospects up despite pressure
Friday 06 September 2013
Over the past year, and particularly last summer, I mentioned on a number of occasions that European stock markets looked good value on many measures. Our own analysis suggested stock markets looked significantly cheaper than their long-term average. While this alone can't be considered a definite buy signal, it can suggest much of the downside is already priced in. A year later and the European stock market, as measured by the FTSE AW Europe ex.UK Index, has risen 26 per cent with dividends reinvested.
Despite this, some funds have not performed as well as I would have expected. One is Schroder European Alpha Plus, which has returned a decent 24 per cent but still lagged the wider stock market. The fund is managed with a focus on quality businesses with strong growth potential. Around a core of businesses that fit the bill from this perspective, however, are a number of companies more sensitive to economic growth; those that have underperformed or become unloved, and those restructuring.
Leon Howard-Spink, the fund's manager, confessed his performance had not been good enough. The top four companies that contributed negatively to performance cost him 3.5 per cent over the period. They have all now been sold. Three of the stocks – Saipem, Fugro and Vopal – suffered from profit warnings related to the energy market, and the latter two had been successful long-term holdings so all was not lost. The fund now has no exposure to the major oil or oil-service companies.
Mr Howard-Spink says his style of focusing on quality companies with growth potential has been out of favour. Unloved value companies with recovery potential have tended to perform better, and he tends to hold less in these stocks. Instead, he has focused on companies with high cash flow and return on equity, and lower debt, but which still look good value. Surprisingly, companies with these characteristic have not performed as well over the short term.
Quality companies with global growth potential have become more expensive, and Mr Howard-Spink has made adjustments to reflect this. He has added names he held in the past such as Syngenta. He is also keen to get new ideas into the fund, and wants the top three contributors over time to be an eclectic mix of companies, not just household names. He has also increased exposure to higher-risk smaller and medium-sized companies. GEA Group, for example, is a German food-processing equipment maker. It sells a lot to the emerging markets, and Mr Howard-Spink believes earnings should continue to rise and the valuation is reasonable.
The top three contributors to performance over the past year have been banks – BNP, DNB and UBS. He has tended to be underweight banks for his whole career, but as a stock-picker is willing to use his flexibility to seek opportunities in a variety of sectors. He wants to maintain a diversified portfolio which might provide some relative shelter from a tough economic environment, but equally could perform well in a recovery. That said, he is keen not to over-diversify the portfolio, so has reduced the total number of companies held to 38.
Mr Howard-Spink still believes European stock markets are cheap, and describes himself as cautiously optimistic. We could see more market volatility in the coming weeks. However, Mr Howard-Spink has a long and successful track record, and his recent underperformance can be partly explained by his style being out of favour.
I would be tempted to use any further weakness as a chance to top up, as I would expect long-term investors to be rewarded.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit hl.co.uk/independent
- 1 East 17 bandmember Brian Harvey in 'very desperate situation’
- 2 Is this bridge haunted by the ghost of nu rave?
- 3 Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
- 4 The West has it totally wrong on Lee Kuan Yew
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
The West has it totally wrong on Lee Kuan Yew
Revealed: Putin's army of pro-Kremlin bloggers
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station