Artemis European duo shift into cyclicals
Artemis managers Philip Wolstencroft and Peter Saacke have boosted their weighting to selected cyclicals, becoming the latest to believe sentiment may have turned for value stocks.
The co-managers of the £268m Artemis European Growth fund said the portfolio already had a “fairly high exposure to value”, but it lagged a recent rally enjoyed by other cheap stocks.
However, the pair suggested a broader swing in sentiment could be on the way, with some indicators pointing to a recovery for value investing.
“We tend to own cheap stocks whose profits are growing rather than the beaten-up ones which have led the recent rally,” the managers noted in an update.
“As such, the fund lagged the rise in the market. This is unwelcome but not abnormal. It does tend to happen – briefly – at turning points.”
Growth investing has proved to be the dominant style in recent years, with value stocks inside and out of Europe struggling against rival strategies.
According to FE Analytics, since the start of 2015 the FTSE Developed Europe ex UK Growth index has risen by 13 per cent, compared to 2.2 per cent from the FTSE Developed Europe ex UK Value benchmark.
Earlier this year, FundCalibre’s second Fund Management Equity Index research found fund houses with a focus on growth stocks had benefited from this approach in the past five years, while some value-oriented counterparts struggled.
But the Artemis managers believe the switch could now occur. “There are some tentative signs that sentiment has started to turn around and even trading conditions have turned around for these companies,” Mr Wolstencroft said.
“If that happens, you will find that sentiment changes. You will see the majority of fund managers that avoided value companies [will] start sniffing around these companies. They will start buying some of our businesses.”
As part of this view, the managers have boosted their weighting to cyclically exposed sectors where they believe value is good and there are upgrades to forecast earnings.
Beneficiaries of this decision include Austrian cement-maker Wienerberger, German business Software AG, Finnish paper manufacturer UPM-Kymmene Corporation and Skanska, the Swedish construction company.
“[For] the past two years certainly and the past seven generally, value stocks have been a bit of a graveyard for fund managers,” Mr Wolstencroft added.
“They have ended up buying banks and oil stocks and resource companies and these have generally been cheap companies [that are] going south. It’s like catching a falling knife.”
He noted that a number of factors could prompt a reversal of fortunes for value investors.
“Partly, it’s just at the micro level where individual companies produce good news and that acts as a catalyst,” he said.
“At a broader level, it’s probably that sentiment might swing for value stocks in general.”
According to FE Analytics, the fund has outperformed its peer group, the IA Europe excluding UK sector, on both a three- and five-year view, returning 35.4 per cent over five years compared with 32.4 per cent from the sector. Over one year, the fund has underperformed, however, shedding 2.7 per cent compared with a 1.5 per cent decline in the peer group.