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 What happens to your body when you give up sugar?
- 2 Have sex with your iPad thanks to the new sex toy no-one asked for
- 3 The 'sex selfie stick' lets you FaceTime the inside of a vagina
- 4 Why you're almost certainly more like your father than your mother
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
End of the licence fee: BBC to back radical overhaul of how it is funded
Nigel Farage promises Ukip will not 'stigmatise' would-be migrants – and says he wants 'everyone to speak the same language'
Ex-head of MI6: 'We shouldn't kid ourselves that Russia is on a path to democracy'
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
iJobs Money & Business
£8 per hour: Recruitment Genius: This Pension Specialist was established early...
£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...
Day In a Page
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 deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
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
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads