FP Argonaut European Alpha GBP A Acc

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Citywire Selection

FP Argonaut European Alpha GBP A Acc

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Ranked 5/100 in Equity - Europe Excluding UK over 3 years

TOTAL RETURN over 1 month to 24/04/2014


 FP Argonaut European Alpha GBP A Acc  Benchmark

Who runs this fund?

Fund Group

Argonaut Capital Partners

How this fund has performed over

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Maximum loss on £1000

How FP Argonaut European Alpha GBP A Acc compares to the sector over

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How FP Argonaut European Alpha GBP A Acc compares to the sector over

Sectors: What is this fund investing in? Updated 28-02-2014

Top 10 holdings Updated 31-01-2014

  • Fund information

    • Launch Date 16 Jul 2012
    • Share Class size £123.6m
    • Base Currency GBP
    • ISIN GB00B4ZRCD05
  • Purchase Info

    • Minimum initial investment £50000
    • Minimum additional investment N/A
  • Charges

    • Annual management charge1.8%
    • Initial charge5.3%

FP Argonaut European Alpha GBP A Acc

Citywire A-rated IM Argonaut European Alpha manager Barry Norris has taken his weighting in banks from 0% in March to 22% by the end of September after holding nothing in the sector for almost five years.

Norris has gone overweight banks through the addition of UBS, Jyskebank, KBC and Intesa.

Expensive blue chips

He has made this move after rotating out of what he considers to be expensively valued blue chip international stocks such as Nestlé and AB InBev.

Norris told Citywire Selection: ‘Our issue with the banks was always that until the balance sheets were repaired debt holders would always get a better deal than equity holders but finally they are getting fixed.

‘Banks have been locked in an earnings downgrade and most European banks have continued to get downgrades because they are a geared play on domestic European growth and only in Q2 of this year did Europe emerge from 18 months of recession.’

He is optimistic there is some momentum behind the upturn, which he thinks points to sustainable growth for the Continent.

‘If you believe that the European economy is picking up, you don’t now go for international blue chip funds but for those companies geared into the domestic recovery. We don’t think international blue chips will surprise on the upside but we do think domestic cyclicals will.'

Norris believes stocks such as Nestlé, SAB Miller, LVMH and Rémy Contreau are all trading on expensive multiples and have a significant chance of seeing downgrades.

‘Because of that, we think buying cheap domestic cyclicals with the chance of an earnings upgrade seems sensible.'

Domestic recovery

A year ago consumer staples were the biggest overweight at around 22% of the fund but the sector now comprises just 6%. 

Norris believes that within Europe there are three sectors of domestic cyclicals that are likely to experience meaningful growth; banks, utilities and telecoms.

He says utilities may still be exposed to further downgrades as  power prices continue to fall, and fixed line traditional telecoms firms are under threat from new tech developments with many investors ‘underestimating how wifi will cannibalise telco earnings’.

‘If European growth went from 0% to 2% we would expect to see much more growth from banks than telecoms or utilities,’ he added.

Norris has selected his banks carefully as he believes many still face potential downgrades.

‘We have picked banks that have raised capital ratios sufficiently, can bounce back as European growth picks up and which have a credible capital allocation strategy.

‘In 2008 they owned all sorts of rubbish, which is systematic of poor capital allocation, and in most cases banks have been better off by shrinking their balance sheets to improve return on equity. In Europe there are some management teams that get that and some that don’t.’

Key bank holdings

Norris cites UBS, which has halved its balance sheet from CHF2.4 trillion (£1.6 trillion) to CHF1.2 trillion after closing its fixed income investment bank.

‘They realised it was hugely capital intensive, low margin and high risk and what they are now left with is of much higher quality.

‘Contrast that with Barclays and the French banks that don’t seem to realise that the world has changed. Barclays has had to raise equity.’

Norris also believes banks’ provisions for bad debts are normalising and that if the Italian economy comes out of recession, provisions for bad loans at Intesa will fall dramatically.

‘Holding KBC is a play on the Irish recovery. It already has two very profitable units in the Czech Republic and Belgium and if property continues to pick up in Ireland its bad loans book would sink from €400 million to €150 million.’

Norris says he has added Danish Jyskebank as it has been a major beneficiary of the banking sector in the country falling from around 200 banks to 98.

‘A lot of small and medium-sized banks have gone bust because the public voted against bail outs and a lot are being sold for bargain basement prices,’ he said. ‘Jyskebank has a lot of surplus capital so if it can apply that to the Danish market, it should see significant earnings upgrade.’

Over five years to the end of September the fund has returned 52.9% compared to 24.5% by the FTSE World Europe ex UK index.

Citywire Selection Verdict: Barry Norris has taken the view that consumer staples companies in the food and beverage sectors have become expensive, and sold his holdings in the third quarter of 2013.

He has been adding selectively to cyclical companies he feels are undervalued and can create positive earnings surprises. This includes companies in Greece and Italy as well as the first move into banks since 2008. Our in-house screening of fund managers shows Norris has a proven ability to generate consistent outperformance across market cycles.

For more details view the latest factsheet .

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