While many investors have shied away from Europe, Premier’s David Hambidge has seen success from funds tapping the region’s smaller companies market.
Hambidge, who co-manages the Premier Multi-Asset Growth fund alongside Ian Rees and Simon Evan-Cook, points out that while valuations across European markets are very low, some of ‘nuggets’ of good news are in the region’s smaller companies space.
‘If you don’t like Europe you’re definitely not going to be buying European smaller companies and actually that’s where some of the nuggets are. We love smaller companies,’ he said.
He singled out the Threadneedle European Smaller Companies as one he likes in that space.
‘It’s got the best team, it’s a very small team, pan-European and very off-piste,’ he explained.
The fund has been run by Citywire Selection David Dudding and its stellar performance has helped power the fund to a 16.43% return this year, compared to 8.76% in the LCI UK Balanced & International Equity benchmark.
Since the fund range offered in the European Smaller Companies sector is still small, Hambidge describes most of his European holdings as ‘conventional’, and points to Citywire AAA-rated Alistair Hibbert’s BlackRock European funds as a good call this year.
Hambidge sold out of the Schroder European Alpha Plus ‘as a happy investor’ owing to slight capacity issues and instead bought in to the Baillie Gifford European fund which Hambidge describes as ‘below most investors’ radars’.
‘We have had a decent exposure to Europe for the 12 months or so and for value investors that can be a bit frustrating. I’d suggest that part of that value has now been realised, really since Draghi came and underpinned the market through bond purchases,’ he said.
‘We prefer Europe as a place to invest as buyer of funds rather than direct equities,’ he explained. ‘We believe it is far easier to outperform in a less efficient market than a more efficient market. Europe is made up of all those different cultures and the ability of a manager to add value is much greater than with the US which is really over-analysed.’
With the growth in natural disasters in recent years, many investors have begun taking notice of the insurance sector, and Hambidge still regards this space as an uncrowded trade. He's chosen the Polar Capital Global Insurance fund as the best way to access the sector.
‘It’s an uncrowded trade and valuations are attractive,’ Hambidge said. ‘I can’t suggest there are any positives to be gained from events like Hurricane Sandy but from a financial point of view, when you make a claim your premium goes up. It’s unclear how many claims there will be but what is absolutely cast iron in our view is that the premiums will be going up.’
On Hambidge’s watchlist for 2013 is the infrastructure space, a theme he says looks ‘particularly compelling’.
‘It’s an area that we think is one where there is going to be ongoing demand for the them. Prices don’t seem to be overcooked in the slightest – it’s not a mega-cheap area but prices don’t seem overcooked.’
Hedging yen exposure
‘We’ve hedged virtually all our yen exposure and that’s one thing that’s definitely worked this year,’ Hambidge said.
‘The fact of the matter is what Japan really needs, the catalyst for a sustained equity rally is a weakening of the yen… you have to see a continuation of that trend for it to have a positive impact on the stock market.’
As for most with exposure to Japan, the country has been something of a drag on performance with even the market leading GLG and Schroders Japan funds lagging.
‘Neither Schroders nor GLG have had a particularly great year,’ he said.
‘They had a value bias and Japanese large cap value has had one of its fairly rare period where it performs quite badly. We have quite a lot of faith in the GLG team and we are quite happy to maintain our position.’