Artemis Global Growth fund manager Peter Saacke is increasing his exposure to American regional banks after shifting from emerging market holdings.
The manager has credited this timely move from emerging markets and China to Europe and the US as the core reason behind his recent outperformance.
Mr Saacke, who has managed the £433m fund for 12 years, said he was increasing his exposure to regional US banks due to the fact they were trading on “pedestrian valuations [in spite of] solid returns on equity” and “enjoying a very pleasant tailwind”.
The banks in question, two of which are Berkshire Hills Bancorp and Great Western Bancorp, focus on retail and business banking and only operate in a handful of states in the country.
Berkshire Hills Bancorp’s share price has increased by 11.7 per cent since the start of this year, while Great Western Bancorp’s stock has risen 28 per cent.
The manager said banking regulations in the US had become a growing issue for larger institutions, whereas these regional banks operated on a much smaller scale and were not subject to the same rules as those deemed ‘systemic’. This had allowed them to gain market share.
Mr Saacke said his move to shift money from China to the US and Europe had paid off, given he had reduced his China overweight from 10 percentage points down to two by late spring, ahead of the country’s equity sell-off in summer.
“Emerging markets are still a positive contributor, but I started taking profits in April and May,” he said.
“By summer, we had materially reduced our overweight, so that was an interesting driver [of outperformance].”
Even though Chinese stocks had rallied sharply in the 12 months prior to summer, Mr Saacke said he had previously been building a position in the belief that certain shares were materially undervalued.
But by April he had become less convinced that other investors agreed.
“Value played a role [in my decision],” he said.
“Generally, investor sentiment to China was negative –which appealed. There were companies growing earnings within the Chinese market, but there was a discrepancy between valuations, which signalled things were going to go horribly wrong.”
In the six months to September 30, the fund outperformed the Investment Association Global sector by 2.6 per cent, data from FE Analytics shows.
Mr Saacke put this achievement down to his defensive shift from China to developed markets.
The manager has taken capital out of cyclical sectors – construction, chemicals and industrials – and has moved it towards healthcare, telecommunication and utility companies.
He has also begun increasing exposure to value stocks, and said he was “practically certain” that equity markets would begin rewarding value investors again after years of punishment.
He highlighted Samsung and China Construction Bank, in particular. The latter had a price-to-earnings ratio lower than its dividend yield, which was a rarity among stocks, he noted.
At the end of September the fund had 48.7 per cent in North America, 26 per cent in Europe and 13.5 per cent in emerging markets, according to Artemis.
Mr Saacke’s fund delivered 58.5 per cent in the three years to November 16, compared with the average return of 34.7 per cent for the IA Global sector, FE Analytics data shows.
