Managers shrug off austerity riots
A number of respected European fund managers last week shrugged off the anti-austerity protests that flared into riots in troubled eurozone states.
Old Mutual’s Kevin Lilley, BlackRock’s Vincent Devlin and Royal London’s Neil Wilkinson all told Investment Adviser they were remaining positive amid the chaos.
Strikes took place in Greece, Italy, Spain and Portugal last week with demonstrators breaking out into riots in some regions, amid a wave of mass unemployment fuelled by the government austerity being wheeled out across the continent.
The strikes came as the gross domestic product (GDP) of the 17-member eurozone area was officially reported as having fallen by 0.1 per cent in the third quarter – placing the region back in recession.
The so-called ‘core’ European states – France and Germany – both reported 0.2 per cent of GDP growth in the third quarter, according to Eurostat, but the 17-member eurozone was dragged down by poor results from Portugal and the Netherlands.
Kevin Lilley, manager of the £51.7m Old Mutual European Equity fund, said: “I’m positioned in a procyclical way even though 95 per cent of the market is not.
“When the market goes up at the moment the index tracker funds are in the top quartile which means the vast majority of people are positioned for a falling market.
“I’m positioned the other way because markets are being held back by politics which can be cleared.”
In September, Mr Lilley increased the market sensitivity of the portfolio by buying carmaker Volvo, Belgian zinc miner Nyrstar and Austrian steel company Voestalpine. This was funded by the sale of more defensive holdings including pharmaceutical Novartis and defence company EADS, which the manager said was “sold immediately on the merger announcement”.
Vincent Devlin, manager of the £242.4m BlackRock Greater Europe investment trust said: “We continue to seek the most selective investment opportunities in oversold areas within the periphery.”
The manager said while weaker European economic data was not unexpected, forward looking leading indicators were “pointing to a recovery in the medium-term”.
“With continued progress towards fiscal integration, Spain’s potential request for support and the ECB’s commitment to keeping the eurozone intact there is a potential for the risk premium on European equities to fall further from elevated levels and we have already seen peripheral yields fall further in October,” he said.
Mr Devlin added that, given closer fiscal integration in Europe was “not without its uncertainties”, he remained focused on proven business models with attractive earnings growth and was also looking outside core Europe for opportunities.