Invesco Perpetual’s Adrian Bignell has increased his exposure to cyclical stocks in a bid to capture the recent market rally and recoup underperformance.
The manager of the £128.6m European Smaller Companies fund said he had added to stocks in the car manufacturing, shipping and asset management industries – positions which have provided a boost this month following the market falls in June.
The fund had delivered a 3.2 per cent loss in the five years to June 30, but in the five-year period to July 24 the fund has produced a return of 12 per cent, according to FE Analytics.
The FTSEurofirst 300 index fell to 1,120 in late June but was already above 1,200 by July 24.
Mr Bignell said he had also started analysing more peripheral companies as business sentiment and economic data began to slowly improve.
“If we rewound two years the fund would be very much core and northern Europe, but now we are seeing purchasing manufacturers’ index data improve, governments’ fiscal deficits are swinging to small surpluses, and these countries can deal with 5 per cent bond yields,” he said. “They have stabilised.”
Mr Bignell had an 8.8 per cent weighting in Italian shares at the end of June, with nearly 2.5 per cent in Spain and 2.3 per cent in Ireland.
He said he was more bullish about the prospects for improved economic growth in the second half of the year and had increased his weighting in stocks that would benefit.
The manager said he had upped his exposure to French car-part manufacturer Faurecia, Danish shipping company DS Norden and Italian-based bank and asset manager BancaGenerali.
“In terms of car volumes, just 6.4m were sold in Europe in the first half of this year, which is the lowest level for 20 years,” he said.
“The first half of this year showed a bottoming out, and as economic data begins to improve that gives chief executives confidence to invest and employ people, and then you get a virtuous circle.”
Mr Bignell said he also liked airline stocks at present because the businesses were cutting costs and adding little capacity, meaning they were lean and would be ready to act when demand improved.
With oil prices falling globally, the manager said the airlines could see a strong tailwind, particularly if macro-economic data continued to improve, “which we are beginning to see”.
“If we get a pick-up in the macro and costs are falling, then this can have a really good leveraged effect on the margins,” he said.
The manager also said he was investigating increasing his exposure to companies further down the cap scale, as the larger stocks in his universe had performed well.
“The next stage will be to look a little bit further down the market-cap scale, because what has worked so far is the high end of mid caps,” he said.
“The micro-cap area is stuck in a corner and that will be an interesting area to invest in.”