Sarasin’s multi-manager team has switched its European exposure from passive tracker funds to actively managed funds in the face of new headwinds for the region.
The team had been invested in the passive iShares Europe ex UK exchange-traded fund to access Europe since the launch of its two funds, Sarasin Global Diversified Fund of Funds and Sarasin Global Equity Fund of Funds in 2012.
But the managers have now established positions in the Memnon European fund and the Verrazano European Advantage Sterling Hedged fund, run by former Gartmore star Guillaume Rambourg.
Oliver Tucker, who manages the Sarasin funds with Lucy Walker, said he wanted to add to Europe but was worried about what he deemed a risk of deflation.
This meant he wanted to be invested in funds that would be less exposed to that risk and he chose the Memnon and Verrazano funds as he thought the “blend” should “see us through the headwinds that may be facing the region”.
The move is a shift in focus for the fund range within European equities towards the active equity space. “From launch we did a review of the European equity space and it was very noticeable that all managers were underweight financials,” Mr Tucker said. “So on a contrarian call we invested in a passive vehicle so that we had the market weight in financials.
“That played out quite well and financials rallied, but we did feel that now was the time to move into active management.”
The managers said they had been partially funding the increased exposure to Europe by reducing their weighting in the US. However, they have added a new fund to their US holdings, looking to take a slightly more defensive position in the region because the market has rallied strongly and they believe it now looks expensive.
Ms Walker said she and Mr Tucker had added the Vulcan Value fund into their multi-manager range, praising it as a “defensive play” which gave their US holdings a “nice blend given the multiple expansion”.
The managers said they were worried about the lack of strong company announcements from the most recent earnings season.
Mr Tucker said: “Companies that have missed earnings by a tiny margin have been walloped in the market because of being priced for perfection.”
He said that Europe looked cheaper than other major markets on a “relative value basis” so he said it “makes sense to have more there than in the past”.
He also said there was value appearing within emerging markets, in which both equities and bonds have underperformed recently. Mr Tucker said there were “still headwinds” for the region, but said the elections taking place in several regions this year could bring positive change.
The managers currently have approximately 9.5 per cent in emerging markets in their Global Equity Fund of Funds but said they would be looking to raise that at some point in 2014 because “once these things start changing you will miss it if you are not invested”.
