Bullish overweight calls on financials and peripheral countries including Spain have seen Jeff Taylor’s £1.1bn Invesco European Equity fund rise back up the performance rankings.
Mr Taylor’s exposure to more cyclical areas of the market has paid off lately, particularly in the past 12 to 16 months”, he claims.
The manager’s strong performance comes just months after Morningstar OBSR removed its Bronze rating in favour of a Neutral one based on “overarching concerns” about how Mr Taylor had been able to manage the fund in recent years.
In five years, the fund has produced second quartile returns but the manager’s cyclical and peripheral exposure hurt the fund in 2011 - a year it produced losses greater than the IMA Europe Excluding UK sector average. This means the fund’s three-year numbers are third quartile at present.
However, the fund has produced a solid top decile return in one year of 41.1 per cent and also is top decile since May 1, when Morningstar OBSR derated the fund.
“I have been going increasingly more against the flow of European investors in the past few years,” Mr Taylor said.
“The consensus view was the eurozone would blow up and the only thing you want to own is Nestlé, but my view was the euro wouldn’t blow up as it suited too many people for it to stay together.”
My Taylor’s fund held almost 28.5 per cent in financials at the end of July - the largest sector exposure - and Spain featured as the second largest country weighting at 16.5 per cent.
The manager said he had been adding to financials positions, including banks and insurance companies, through “much of last year”. Stocks include BBVA and Spanish domestic bank Bankinter.
“If I can find really good companies with great future prospects and asset backing in the periphery where the market has not wanted to look because of worries about the eurozone I have been happy to go the other way,” he said.
The manager said he had worked “more closely than ever before” with the group’s bond team, which includes star managers Paul Causer and Paul Read, who have also benefited from against-the-grain calls on peripheral and financial plays.
“The bond team has benefited from our knowledge and us from them,” Mr Taylor said.
In spite of Mr Taylor’s recent strong performance, the manager said he still saw upside in some of the financial and peripheral names he owns.
“Performance of some of these stocks and sectors has been very good so more people must be buying them,” he said. “But I’m still not finding it difficult to find ideas I want to invest in.”
The manager said further rises are supported by earnings upgrades with the number of financial stock upgrades “extremely strong relative to staples in recent months”.
Mr Taylor also said praised Spain for its swing from “massive current account deficit to a surplus” and that robust kabour market reforms had seen the country “price itself back to work”.