Jupiter JGF European Opportunities manager Cedric de Fonclare thinks positive sentiment around peripheral Europe's recovery may have been 'overplayed' after returning from a fact-finding trip to Spain.
De Fonclare has outperformed the index in 2013 despite having almost no exposure to the country and remaining steadfastly overweight core Europe and Scandinavia.
De Fonclare and colleague James Clunie visited Spanish banks, retailers and utility firms, and although de Fonclare accepts the ecomonic backdrop is improving, he is still wary of the risks involved.
'Things are improving in Spain, but we still don't see a huge margin of safety in Spanish names. If we see a continued domestic improvement, we might increase our exposure but I just feel that some of the positivity has been overplayed,' he said.
De Fonclare said he will take his weighting to banks no higher even if the ECB stress tests prove more positive for many banks.
Two years ago Citywire + rated de Fonclare had nothing in European banks, but he has now brought his exposure in line with the benchmark having initially bought back into the sector with the purchase of UBS almost two years ago.
He has subsequently added to the sector primarily through core European banks such as Sweden's SEB and Dutch ING, but also more recently banks in Southern Europe, such as Italy's Unicredit and a 1% stake in Spain's BBVA, his first Spanish holding for some time.
'BBVA is a high quality business and very profitable. We think it carries less risk than some of the other names in Spain, while Unicredit is trading at a big discount to asset value and has a helpful capital structure.'
Outside banks, de Fonclare's other top performers in 2013 included tyre and auto safety specialist Continental, luxury brands group Swatch and pharmaceutical holding Shire.
De Fonclare has sold down selective high quality names such as long standing favourite Essilor and medical firm Fresenius after strong runs.
'I got a bit uncomfortable with the valuations and saw better opportunities elsewhere in other quality names.'
De Fonclare continues to avoid poor quality companies with weak balance sheets.
'We will not play the cyclical bounce through poor quality companies like Peugeot but will keep our focus on quality firms with stronger balance sheets.'
Over three years to the end of November, the fund has returned 40.9% compared with 27.9% by the average manager in euro terms.