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Henderson’s Lofthouse is losing patience with Euro recovery

by Eleanor Lawrie on Jul 07, 2014 at 12:02

Henderson’s Lofthouse is losing patience with Euro recovery

Ben Lofthouse (pictured), co-manager of the Henderson Global Equity Income fund, has reduced his weighting to European consumer names struggling with continued weakness in spending growth.

Europe is the £695.7 million global fund’s biggest regional weighting, with 11% in Switzerland, 20% in the UK and 25% in the rest of region.

‘We increased our European exposure gradually last year because of valuations. It looked very cheap versus other areas of the world and it has some world class companies such as Novartis and Roche,’ Lofthouse said.

But the Citywire AA-rated manager is disheartened by the fact that, six years after the economic crisis, Europe is still struggling to display any significant growth. The eurozone registered a paltry 0.2% GDP expansion in the first quarter, down from 0.3% in the last three months of 2013.

Lofthouse questioned member countries’ reliance on the European Central Bank (ECB), which recently announced it was taking deposit rates negative in an attempt to kick start business lending.

‘The rate of growth across Europe is still subdued and disappointing. We had hoped by now we would get some growth from the underlying economies. It’s good the ECB is doing something, but bad that it had to,’ he said.

Consumer-facing names have been hit particularly hard, and Lofthouse’s fund recently sold white goods manufacturer Electrolux. While sales had improved, it was not enough to offset the reduced price competitiveness of a strong euro.

Underweight retailers

Lofthouse is underweight European retailers in general, as consumer spending has failed to materialise, and has also been selling down European financials. This is partly because they have done well recently and also because the outlook for insurers looks more negative as they sell products linked to interest rates.

One area set to benefit for the ECB stimulus is real estate, as investors turn to property to find yield now that rates will stay lower for longer.

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