Oliver and his Argonauts leave the options open for investors
PARTSP of the Continent might remain economic basket cases, butb investors in European inv investment funds are faring some somewhat better. Thoughh hf few of fh these funds have escaped the effects of China’s recent market turmoil, most are still showing a positive return year-on-year.
And if Oliver Russ is reading the numbers coming out of Europe correctly, big chunks of the corporate community are in rude health and set to deliver doubledigit earnings growth this year.
‘It could be the turning point fund managers and investors have been waiting for,’ he says.
‘For too many years, analysts have talked about a sustained recovery in corporate profits, but it hasn’t then materialised. Now, European corporates are enjoying robust profits growth and there is a healthy backdrop of takeover activity, fuelled by low interest rates and a depressed euro.’
Russ is part of a three-man investment management team at London based Argonaut Capital, a decade-old boutique investment house that he co-founded and which now runs £1billion of assets, most of it in European equities.
Three European funds are available to investors. The most popular and successful – over the past five years, at least – is European Alpha, a concentrated portfolio of Argonaut’s ‘best ideas’. But over the past year, it is European Enhanced Income that has led the way. The trio of funds is completed by European Income.
European Enhanced Income is unusual in two ways. First, Russ buys protection through hedging, which safeguards against currency risks. This has proved especially productive over the past year as the euro has fallen against the pound.
He is also happy to boost or ‘enhance’ the fund’s income by the selective use of ‘covered call options’. In simple terms, he gives a purchaser the right to buy certain shares in the fund at a set price on a specific date.
The buyer pays a fee for the option, which in turn boosts the fund’s income. But the fund would miss out on some gains if the buyer exercises the option, because they would do so only if the shares in question had risen above the agreed price. Russ says market conditions in recent months have not lent themselves to the use of such options.
The fund currently yields 5 per cent. Income is paid quarterly.