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By Nick Reeve | Published Aug 16, 2012

HSBC European manager targets improved performance

HSBC Global Asset Management’s Frederic Leguay has defended his €514.6m (£402.9m) Euroland Equity fund’s high exposure to Spain and vowed to turn the fund’s performance around.

The Luxembourg-based fund has one of the highest exposures to the Spanish stockmarket of the 172 European equity funds listed in the IMA sectors.

The fund also has a 3.4 per cent weighting in Spanish telecoms firm Telefonica, which suspended dividend payments last month amid concerns about the rising cost of refinancing its debt. Over the last six months its share price has plummeted 20.5 per cent.

Mr Leguay, head of European equity at HSBC Global Asset Management, said: “We are not reconsidering our position in Telefonica. We’re facing a situation where the negative newsflow was in the price but we underestimated the size of the downgrade. I don’t think it should be at that price.”

He said that the fund’s focus on buying ‘value’ stocks at low valuations in order to benefit from price increases had not been working over the last 18 months as investors had become averse to taking risks - particularly regarding southern European exposure.

Mr Leguay added: “Also there is a polarisation in the market. There are some stocks which everyone wants to own, and a group of stocks no one wants to own, regardless of valuation, because they are in southern Europe.

“The polarisation is now very wide. Eventually it will come in again but the question of when is really what matters. In the meantime we need to try not to suffer too much.”

The manager admitted his Spanish exposure - which amounts to roughly 13.7 per cent of the Euroland Equity fund - had dragged on the fund’s performance since the start of 2012, but emphasised this was largely down to poor performance from oil and gas firm Repsol.

The Madrid-based company has seen its share price fall by more than a third since the start of the year.

“If we hadn’t owned Repsol we would have had a positive performance of around 1 per cent,” Mr Leguay said. “I believe we will extract some [positive] performance from Repsol before the end of the year and we can get a positive year for the fund in 2012.”

The manager also pointed out that one the best-performing stocks in the fund was Grifols, a Spanish pharmaceuticals company, which has gained 71.5 per cent since January 3.

The Euroland Equity fund has lost 20.6 per cent over five years to August 14, according to FE, compared with an average loss of 5 per cent from the IMA Europe ex UK sector. The fund’s benchmark, the MSCI EMU index, lost 19.7 per cent over the same period.

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