‘We bought into banks too early’

The Daily Telegraph - Your Money - - INVESTING FUND OF THE WEEK -

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

The trust has a to­tal cost (the “OCF” or “TER”) of a year. Be sure to buy the right “share class”, which is “C”. The in­vest­ment shop through which you buy the fund will also levy a charge. Some will charge


a per­cent­age of the amount in­vested, oth­ers will ap­ply a flat an­nual fee. Our colour coded ta­bles at

tele­graph.co.uk/ investing

will guide you to the cheap­est fund shop for your cir­cum­stances.


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