Henderson Global Investors’ Ollie Beckett has ramped up his exposure to so-called peripheral European countries in a move that has reduced his overweight to the core of the continent.
The manager of the £346m TR European Growth investment trust said he had been building exposure to domestic European opportunities and that many of these had come from Italy – a country he is now overweight – and Spain.
Mr Beckett said the portfolio remained “heavily overweight” Germany and Switzerland, but the extent of this overweight had “narrowed over the course of the year”.
“We steadily added to the portfolio’s Italian exposure and now have a reasonable overweight in the country.”
He said even though it was “not difficult to find reasons or excuses to run away from European equity markets in general”, he was confident moves by European Central Bank (ECB) president Mario Draghi would have a positive impact on the bloc, including under-pressure economies such as Italy and Spain.
The central banker’s targeted longer-term refinancing operations (TLTRO) is a scheme of low-rate loans, which commercial banks can take up and then lend to businesses and individuals.
As yet, take-up of the loans has not been as strong as some commentators hoped for. Data from the ECB shows 255 bidders took on just more than ¤82bn (£64.6bn) – short of the ¤100bn expected. The next set of TLTROs will be released in December.
Mr Beckett said the low take-up was likely because of the fact European banks are undergoing stress tests of their balance sheets by policymakers.
“This was always going to have a lagged effect, as banks have to go through the ECB’s Asset Quality Review,” he said.
“By October, the review will be finalised and lending will no longer be suppressed.”
The manager added that in Italy, where he has found an increasing number of businesses to invest in, prime minister Matteo Renzi had produced “no great impact”, but did garner popular support.
“In Italy, Mr Renzi has a popular mandate for reform and has announced a series of reforms to increase labour flexibility and reduce corporate taxation,” he said.
“Italy, alongside Greece, Ireland and Portugal, is among the top economic reformers of the Organisation for Economic Co-operation and Development.”
Mr Beckett said his Italian investments had been split between companies benefiting from structural growth factors, such as internet retailer Yoox, medical device company Sorin and bank FinecoBank, and those that have “taken the difficult measures required to improve as businesses”, such as Italian banking group Banca Popolare dell’Emilia Romagna and sunglasses and sportswear producer Safilo.
The manager said he had also increased his exposure to Spain, although he remained underweight the country.
He has backed names such as Sacyr, a conglomerate with interests in construction, concessions and Spanish real estate, as well as bank Liberbank, “as the stock is very cheap and over the course of the next few years should see improving returns as lower funding costs boost profitability”.
Mr Beckett added his strongest holdings had indeed come from both countries with Spanish bank Bankinter and real estate company Inmobiliaria Colonial being strong contributors to performance.
In Italy, machinery manufacturer IMA and asset manager Azimut also delivered strong returns, he said.
“The strongest contributor was Spanish Wi-Fi and telecommunications services provider Let’s Gowex, in spite of the fact we had been selling down due to significant concerns about the accounting. The firm was subsequently uncovered as a fraud after we exited the position.”
