Neptune’s European Opportunities fund has raced to the top of the performance charts on a 12-month basis, hauling its lagging five-year numbers back in line with the sector’s average.
Manager Rob Burnett said he had been “too early” to back the European economic recovery, the evidence of which “only really started to come through around May last year”.
Mr Burnett is backing cyclical sectors, primarily banks, as he believes the recovery is still in its early stages.
“It is extremely early to be calling time on the recovery,” he said. “I would argue that we are still pretty early on into it. Europe really only pulled itself out of recession some 10 months ago.”
The early call on the recovery in 2012 caused the fund to lag most of its peers that year, falling to second from bottom in the IMA Europe ex UK sector based on 2012 performance, according to FE Analytics.
Last May broker Bestinvest slapped the European Opportunities fund with a ‘one-star’ rating after its long-term performance plummeted as a result of the poor 2012.
However, since then the fund has rebounded robustly, achieving a 31 per cent return in the past 12 months to April 8, ranking it in the top 10 in the peer group for that period. In 2014 so far Mr Burnett’s portfolio has gained 12 per cent, while the average IMA Europe ex UK fund has gained 4 per cent.
Longer term the fund’s five-year performance has risen from third quartile to second quartile.
Mr Burnett said: “We like basic retail banks, whose model is based on deposits and loans. One such group is the Italian bank Intesa Sanpaolo. It is very well capitalised and likely to pay a good dividend.
“The utilities sector is the only other sector in aggregate that is trading below book value, which is pretty extraordinary. Within the sector we like Gas Natural Fenosa, a Spanish group that looks set to pay a dividend somewhere between 4.5 per cent and 5 per cent and I can see the business delivering good growth in the coming years.”
However, the manager acknowledged there were “pockets of the market” that have moved to the wrong side of good value.
He said: “The sectors that served as the ports during the storm – notably consumer staples – do not merit their current premium. L’Oréal and Unilever, for example, are certainly expensive. We practically have a zero weighting in the sector.”
Mr Burnett said he did not expect Europe to be hit with a further crisis in the near future. While he said he anticipated there would be difficult periods and that political risks still existed – most notably in Italy and Greece – overall he forecasted “a plain vanilla economic recovery in the region”.
