Jacob de Tusch-Lec has slashed his exposure to continental Europe by more than 10 percentage points in the past three months in his Artemis Global Income fund.
The manager’s “significantly overweight” position has helped him achieve top-quartile returns since he launched the fund in 2010.
But he has cut his exposure in recent months and overhauled the type of European companies he invests in because he no longer has the same conviction about the region’s investment case.
At the end of April, the Artemis Global Income fund had 46.7 per cent of its assets invested in Europe, but by the end of July that had fallen to 36.4 per cent.
The large overweight in Europe has helped Artemis Global Income generate the best returns in the IMA Global Equity Income sector since its launch, but the manager said the region had begun to detract from returns “for a while”.
Mr de Tusch-Lec said his reasons for investing in Europe for the past few years hinged on stocks that were “incredibly beaten up”, with most investors holding underweight positions in the region. But Mr de Tusch-Lec said this was no longer the case.
As well as sharply cutting his weighting to Europe, Mr de Tusch-Lec said he had also rejigged his European exposure away from growth stocks and towards low beta stocks such as utility companies.
The manager’s rationale was that these companies – sometimes referred to as ‘bond proxies’ because of their high and fairly secure yield – are likely to benefit from the monetary easing policies, such as quantitative easing, that he thinks the European Central Bank must embark on as the bloc’s economy stagnates.
Such policies would likely reduce bond yields, making higher-yielding equities more attractive for income-seeking investors.
Mr de Tusch-Lec had previously benefited from holding bond proxies in the US and Asia during the heights of US quantitative easing, but now only holds such stocks in Europe, as the US embarks on a process of monetary tightening.
In spite of the considerable reduction of its Europe weighting, Artemis Global Income still has an overweight position in the region compared to its global benchmark.
Mr de Tusch-Lec explained that even though the original investment case for Europe may have played out, European share price valuations were “still the best in the world because everywhere else is so expensive”.
He has used the money trimmed from European positions to up his stakes in “economically-sensitive” companies in the US and Asia, particularly China.
Mr de Tusch-Lec cited US conglomerate General Electric (GE) as an example of the type of stocks he had been buying recently.
The manager said GE was “the best bellwether of US economic growth” but had been trading in a tight range this year, in spite of improving US economic data.
While he acknowledged the lack of US share price movement may be down to investors having already priced in the positive economic news, Mr de Tusch-Lec said he was instead betting that investors had not yet fully appreciated the extent of economic growth.
Other US stocks the manager has been adding to recently include private equity firm the Blackstone Group and transportation firm Ryder System.
