Fund boss tells investors: stick with the Continent, the fog will clear
I INVESTORS may be anxious about the economic fog gathering o over Europe – b but that should not compel them to cut the Contin Continent from their portfolios f li j just yet.
Paul Wild, manager of the JO Hambro Capital Management Continental European fund, has reasons to believe that the region is ripe for improving, despite a backdrop of weakening growth – Italy has slipped back into recession barely six months after escaping it and even Germany is in trouble – a sliding euro and Russia imposing sanctions on food imports from Western Europe.
He says there is potential even for Italy, including a law change that may speed up decision making on economic reforms.
The Ukraine crisis continues to unnerve most markets, but Wild suggests the impact on Europe of Russia’s ban on certain imports will be limited. ‘Exports of food and agricultural products to Russia account for just 1 per cent of Eurozone GDP,’ he says.
The fund, along with rivals, has disappointed in the past six months following a strong run. Wild blames his fund’s showing on having too big a proportion invested in cyclical industrial stocks and in financials, which have faced a rocky period.
He says: ‘But we are sticking with banks as I think over the next year they will be a source of value thanks to them replenishing their capital ratios and making savings.’
He also has high hopes for the energy sector, which he describes as ‘looking cheap’. He says: ‘French group Total is starting new production in Angola and the North Sea and the prospects look good. Another attraction is that oil companies in particular now have more cash to cover dividends.’
While on the face of it the fund is 27 per cent invested in France, whose economy is also struggling, the underlying companies all do relatively little business domestically.
The euro’s strengthening against the dollar in the past few months did not help the region’s economy but now this is changing and may help clear the fog. Wild says: ‘It is starting to depreciate, so what has been a headwind may turn into a tailwind in the third quarter.’
Patrick Connolly of independent financial adviser Chase de Vere likes Wild’s fairly cautious approach. He says: ‘This fund has the potential to exploit opportunities on the upside while providing a degree of protection for investors if markets fall.’