Jeff Taylor, manager of the £1.1bn Invesco European Equity fund, has answered a scathing Morningstar OBSR report on the fund by rocketing back up the performance rankings.
The fund was downgraded in May from Bronze to Neutral – the second-worst Morningstar rating – with the data group citing “overarching concerns” about Mr Taylor’s management and the fund’s “disappointing” returns.
But his bullish positions in financials shares and a high weighting in the debt-stricken peripheral regions in Europe have come good amid a sharp market rebound.
“I have been going increasingly more against the flow of European investors in the past few years,” Mr Taylor says.
“The consensus view was the eurozone would blow up and the only thing you would 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 – his greatest sector exposure – and Spain featured as the second-largest country weighting at 16.5 per cent.
The manager says he added to his financials positions, including banks and insurance companies, throughout “much of last year”. Favoured stocks include Spanish banks BBVA and 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 says.
In the past five years, the fund produced second-quartile returns when compared with European fund peers in the UK’s IMA sector universe.
This longer term ranking disguises short-term volatility, and in 2011 the fund lost more than its sector average.
However, in the past 12 months it produced a solidly top-decile return of 41.1 per cent thanks to the rallies in cyclical stocks, and it also ranks in the top decile of its peer group since Morningstar OBSR’s May 1 rating report.
The manager says he expects his fund to continue to outpace rivals as there are further gains to come in his financials and peripheral-eurozone stocks.
Further rises are likely to be supported by earnings upgrades, with financials stock upgrades “extremely strong relative to staples in recent months”, the manager says.
He also praises Spain for its swing from “massive current account deficit to a surplus”.