Top-performing European equities manager Jeff Taylor has added to his favoured cyclical holdings at the expense of more defensive names.
The manager of the £1.3bn Invesco Perpetual European Equity fund said he had increased exposure to such stocks as German-based insurer Allianz and Spanish bank Caixa and sold down companies he considered defensive “bond proxies”.
“Europe had a sharp sell-off towards the end of July and start of August and there were occasions where we felt it was right to be adding to certain financial names we owned,” he said.
“They were typically names we already owned but wanted to creep our weightings up.”
Mr Taylor said there had been a “fairly indiscriminate sell-off”, amplified by geopolitical concerns that had enabled him to add to the stocks.
“We have been adding to cyclical names where the share price weakness threw up an anomaly,” said Mr Taylor. Meanwhile, he has sold “the odd bond proxy name, such as in utilities” to “partly fund more interesting things”.
Mr Taylor said companies in areas such as utilities would do well when bond yields rallied lower but added if there was an expectation they would rise you would “want to have more economically exposed stocks”.
The European Equity fund is top decile across one and three years in the IMA Europe excluding UK sector, according to data from FE Analytics and is one of only 15 funds in the 100-strong sector not to lose money so far in 2014.
Mr Taylor said the strong performance had been driven largely by his positive stance towards financials, the periphery and other cyclical areas.
The manager had nearly 31.7 per cent in financials at the end of July – by far his biggest sector weighting given industrials is second at 16.4 per cent.
Spain is also the fund’s third largest country weighting at 12.7 per cent, while he also has exposure to Italy and Portugal.
Elsewhere, Mr Taylor said his fund was now at the more concentrated level. The manager has 46 holdings at present, a level at the lower end of his 45-55 stock range.
“I have slightly higher conviction holdings,” the manager said, “and the fund has for the past 18 months been creeping up the market-cap scale a little and I have some larger positions in large-cap stocks.
“That has felt like the right thing to do from a valuation perspective.”
Mr Taylor added that there was “still plenty of scope” for small- and mid-sized companies but said he was finding more opportunities in mega-cap companies, which have been “more interesting than for many years” on a valuation basis.
The manager primarily focuses on bottom-up company research, although he also closely scrutinises the macroeconomic situation.
In a recent update, the company’s European equities team said in spite of the weak economic data for the second quarter in Europe, the numbers did “not wipe out the chances of a low-growth full year”, meaning the company still expected a “gradual improvement” in economic activity.
The fund is a member of the Investment Adviser 100 Club of top-performing funds, having delivered strong outperformance across both one- and five-year periods.
