Aim: The past few years have been difficult for anyone investing in Europe. The IMA European Smaller Companies sector has struggled and, within that peer group, one fund that has been particularly hit by the markets is JPMorgan Asset Management’s £87.9m JPM Europe Smaller Companies fund. .
In spite of the fund’s primary aim being to “provide long-term capital growth”, it has underperformed on a cumulative basis both the sector and the HSBC Smaller Europe ex UK index in one, three, five and 10-year time periods to January 24 2013, according to FE Analytics data.
Francesco Conte, co-manager of the fund with Jim Campbell, points out 2012 was a “changeable year”, starting with a rally following the implementation of the European Central Bank’s (ECB) Long Term Refinancing Operation (LTRO). But he adds: “That [the LTRO] finished in February 2012 so after the market rallied very strongly in February, it completely collapsed and imploded all the way to May and June on fears of a eurozone breakup.”
Process: The portfolio is relatively concentrated with approximately 55 holdings, with core positions in secular growth companies that should perform no matter the economic environment.
Utilising a bottom-up approach, including meeting management in their home markets, Mr Conte notes even the top-down themes the fund is currently playing derive from the bottom-up stockpicking process.
“The screen would look at a combination of value, momentum – share price performance and earnings upgrades or downgrades – and quality, but on the small-cap team we spend most of our time talking to companies.”
In 2013, Mr Conte says the process of the fund will not change, although he admits: “I always sell winners too early, so my new year’s resolution is to stick to the winners.”
Performance: Performance on the fund has been patchy in recent years, with the portfolio outperforming both the sector and the HSBC Smaller Europe ex UK index in 2010 with a return of 27.86 per cent compared with the index figure of 16.77 per cent.
The following two years saw the fund’s performance disappoint, with a discrete-year return of 9.99 per cent in 2012 compared with the index return of 16.08 per cent and the peer group average of 21.42 per cent.
In the year to date to January 24, the fund moved back into the second quartile with a return of 7.7 per cent, slightly higher than the average of 7.07 per cent, but this was below the index return of 10.63 per cent.
According to the manager, detractors in the fund tended to be stock specific rather than sector wide, with some affected by sentiment around the eurozone, and others such as SBM Offshore, an oil services company, having to write off a number of contracts.
Mr Conte notes the fund does play a number of themes, including the core theme of secular growth companies in addition to the declining risk premia on eurozone equities, which it is playing through financials, mainly asset managers such as Gam and insurers including Delta Lloyd. The portfolio is also looking to take advantage of economic growth outside of the eurozone.