The wider market has failed to understand regulatory changes that could spur European telecommunication companies, according to global equity manager Mikhail Zverev.
In recent months the manager has targeted stocks such as Deutsche Telekom and BT within his SLI Global Equity Unconstrained fund because the “European regulatory attitudes to telecoms is changing”.
He said until recently the regulators had been focused on “squeezing the profits” of telecoms companies in an effort to make consumers’ lives slightly easier.
This has changed and should lead to increased profits for telecoms firms across Europe, according to Mr Zverev. It stems from a realisation that “if you want to build a digital economy, you need to incentivise private operators”.
With regulators across Europe trying to encourage investment in infrastructure, such as 4G mobile internet, companies could benefit from improved “pricing power”, thus feeding into higher profits.
Mr Zverev said he had first started adding money into telecoms companies in November last year and had been increasing his stakes since then.
Deutsche Telekom has grown to be the fourth-largest holding in his fund, accounting for 2.6 per cent of its assets.
But the telecommunications sector as a whole still only makes up a small proportion of the fund: 5 per cent, according to its latest factsheet.
The Global Equity Unconstrained fund, a member of the Investment Adviser 100 Club 2014, has performed strongly in recent years.
The fund is in the top quartile of the IA Global sector across three and five years and beat the MSCI AC World index in that time, according to data from FE Analytics.
However, it has been challenged in the past year, slightly underperforming both the sector and its benchmark.
Other recent stock moves to improve performance include buying into Avis, the car rental firm. Mr Zverev said the car rental business was an oligopoly, but that firms had not been able to take advantage of this because they have been “badly run” for a long time.
He added that this was starting to change and that Avis was leading the charge with “astonishing” price increases.
Although Avis is a US-based firm, Mr Zverev sounded a note of warning about the stockmarket of the world’s largest economy. He said a large proportion of the “positive surprises” that he looks for in companies have mostly already been priced in by 2014’s enthusiasm for US equities.
The manager said he does not take a particular macro view on the US economy or market as a whole, but “understand[s] why a lot of managers would be cautious that [the US market] has run too far”.
Mr Zverev’s fund currently has 41.5 per cent in the US, which is less than the 51.6 per cent weighting to the country in the MSCI AC World index.
