Old Mutual’s Kevin Lilley has predicted the spark ignited by further easy monetary policy on the continent will be a turning point for European markets.
The FTSEurofirst 300 index lost out in June and July as fears mounted about the stagnating European economy and inflation hit a four-and-a-half year low at 0.4 per cent.
Mr Lilley said several stocks in his £66m Old Mutual European Ex UK fund had struggled during the summer months, citing Lufthansa which was down 30 per cent during the summer as an example.
The fund produced a second-quartile loss of nearly 2.2 per cent in the past three months compared to the 1.5 per cent loss by the MSCI Europe ex UK index, according to data from FE Analytics.
The manager said in spite of this he had done little to change his portfolio and had bulked up existing positions during the summer lull, including in Swiss global healthcare company Hoffmann-La Roche, Novartis, a Swiss pharmaceutical company and French oil and gas company Total.
The move has proved beneficial as the manager has bounced back strongly in the past month with a top quartile 9.9 per cent return.
He said now the European Central Bank president Mario Draghi had added fuel to the fire by pledging to buy hundreds of billions of euros in asset backed securities the holdings he had topped up and his wider portfolio would get a boost.
Mr Draghi has also outlined a programme of targeted loans which it is hoped will be taken up by banks and subsequently distributed to businesses and individuals. Banks will be charged a chead interest rate of 0.25 per cent and the loans will be for four years.
The manager said he was optimistic about his financials holdings - his largest sector at nearly a quarter of the portfolio.
“The economy has been waiting on these loans so there has been a break,” he said.
“With the first round of allocations the lending market will be freed up.”
If the lending market is indeed “freed up” as Mr Lilley expects, it should be beneficial for economic growth and potentially profitable for banks.
The manager said he expected the rise in markets which began in August can continue throughout September and beyond.
“People had been de-risking their portfolios before they went on holiday at the beginning of the summer,” he said.
“Now that everyone is back there will be more focus on the European recovery through the end of the year.”
Mr Lilley said he would maintain a more economically-sensitive portfolio by being overweight financials and underweight more defensive sectors.
“This reflects our view that we have entered the recovery phase of the economic cycle in Europe,” he said.
“We believe that the more defensive sectors of the market look relatively expensive and are unlikely to outperform as the recovery takes hold.”
Furniture:
Pic of Mario Draghi
S4 - in folder
S10 - Lilley’s numbers
24.3%
The exposure to financials in Mr Lilley’s fund
22%
The amount Mr Lilley has in German-domiciled stocks.
(Source: Old Mutual)
