Autos get Alt Ucits star Neme’s engine running
Absence of carmakers in the fund was 'an anomaly that needed to be corrected', says the Paris-based long/short manager
by Chris Sloley on Nov 16, 2012 at 07:01
Leading European long/short equity manager Charles-Henri Neme has seen an immediate pay-off from expanding his investible universe to include auto stocks, the Paris-based manager has said.
The Alternative Ucits A-rated manager said he was driven to include automotive names in his €400 million Exane Funds 1 - Ceres A fund in order to increase the cyclical exposure and capitalise on encouraging growth trends in the emerging markets.
‘This sector is part of consumer spending and its absence from our universe represented an anomaly that needed to be corrected,’ Neme said in his most recent market commentary.
‘Our fund was a little too defensive. This posed problems in certain market rebound phases, as the cyclicals at our disposal - television, temporary staffing, hotels etc. -were often too small to allow rapid manoeuvring. The automobile sector obviously adds much more liquid cyclical companies.’
Another major reason Neme sought to add auto stocks, he said, was in order to increase exposure to two key trends – German economic strength and Chinese consumer spending.
‘[The fund] is highly exposed to China through the luxury goods sector and we felt that it would be interesting to examine China from two points of view rather than just one.’
‘The German premium automobile segment is highly complementary to luxury goods and offers numerous similarities with hard luxury, such as Richemont, Swatch etc.’
Neme said the fund’s exposure had been centred on France (13.4%) and the UK (10.4%) and thought it would be ‘desirable’ to include more German exposure.
Looking at his most recent performance, Neme said the decision to add Volkswagen at the end of September had already proved a positive contributor in the performance of the fund over the course of October.
Neme said the position contributed 27 bps over October.
‘We effectively believe that Volkswagen combines four exceptional characteristics: a multi-brand portfolio, unique profitability in Europe at a time when its competitors are posting losses, exceptional positions in China with both Volkswagen and Audi and finally, a reasonable valuation.’
Volkswagen is currently the third largest long position in the fund, comprising 3.2% of the fund.
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