‘We bought into banks too early’
British investors in European companies have profited from the fall in the value of sterling since the UK’s decision to leave the EU. The devaluation has also boosted funds that invest in European stocks. However, the impact of the forthcoming Brexit negotiations remains an uncertainty in the region.
Rob Burnett, manager of the £355m Neptune European Opportunities fund, said one way to profit in the post-Brexit period was to find companies that are undervalued or out of favour with other investors.
Such “value” investments outperform over the very long term, he said. Mr Burnett talked to Telegraph Money about betting against the European Central Bank, why value is making a comeback and his aspirations for a career in Hollywood.
How do you pick investments?
We have 50 holdings in the fund, so are relatively concentrated. We look at the valuation of companies; our belief is that now is the time to be a value investor.
We will not own a company if it is too expensive as a proportion of earnings or cashflow, irrespective of how good the company is.
We want to be receiving high dividends that are rising and want to be paying a low price for that cashflow and those dividends.
Why do you think ‘value’ investing is going to make a comeback?
Most investors look back over the past eight or nine years, or 20 years, but the case for value is built most strongly looking back 100 years, where it has been the supreme investment style, outperforming the benchmark by a staggering amount.
There is only one condition that stops value working, and that is when interest rates fall.
If interest rates don’t fall then value works, and we are now seemingly in that phase in Europe, where interest rates are no longer going down.
What does Britain leaving the EU mean for European companies?
So far, fund performance has been very positive since the referendum. Generally for us the biggest impact of Brexit is sterling weakness: most of our investments are in other currencies, so sterling’s fall has lifted the fund a lot.
If the pound is going to be weaker, that would lift the returns further. I don’t think that sterling will get that strong, whether Brexit is hard or soft, because Britain’s terms of trade are not good enough to support a strong currency.
Your investment performance in recent years has been rocky. Why?
It is true, 2014 was a really bad year, 2013 was so-so and 2012 was a bit weak. We moved to a value bias too early, and I jumped the gun a bit. We have been ready for this inflection point since 2014.
I didn’t think the European Central Bank would go to negative interest rates. We were overweight banks but then, with the bank getting more aggressive, bank profits fell again.
Rob Burnett of the Neptune European Opportunities fund tells Laura Suter about his investing mistakes
What have been your best and worst investments?
Lanxess, a chemicals company, is a great business.
The share price has gone up from €38 in the summer to €68, a rise of more than 60pc. We have now sold it as we have a strict discipline on price.
The worst investment was probably my premature move into banks in 2014.
I had large holdings in Italian banks at the end of 2015 and start of 2016, assuming that there would be more consolidation in the sector.
That is now starting to happen in a much slower and less powerful way than I expected.
Do you invest your own money in the fund?
Yes, and as a value investor I just can’t buy property in London. So I rent in central London and all the money that would have been invested in a property I invest in my fund.
What would you have done if you hadn’t been a fund manager?
When I left university I went to Los Angeles to be a scriptwriter, and I had a script half written. I worked on film sets but ran out of money and came back, so I fell into fund management and stuck with it. How to buy the fund as cheaply as possible
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