European Smaller Companies manager Jim Campbell has upped his exposure to racier parts of the stockmarket, in a reversal of his performance-inhibiting defensive stance of recent months.
Two years ago, the £429.9m JPMorgan Smaller Companies investment trust was focused on defensive sectors such as healthcare, but it is now “pro-cyclical,” focusing on engineering, financials and construction.
“The last time we performed badly against the peer group was 2009,” he said.
“Going off the end of the financial crisis, the market was terrible in 2008 and we did well because we were full of domestic names,” Mr Campbell said. “Then the market was buying very bombed-out cyclicals and we were resistant to that for longer than we should have been.”
He added that the trust had been as much as 15-20 per cent behind the index, which had been “very painful”.
But Mr Campbell said the trust was now “much more cyclical” than its peers.
The catalyst for the strategy change was European Central Bank president Mario Draghi’s pledge to save the eurozone from a break-up, the manager explained.
“Since then risk-on, risk-off has abated and periphery bond yields have stabilised...the appetite for risk has become more tolerant and demand for these names has increased,” he said.
The trust’s biggest regional overweight after the Netherlands is in Greece, which has risen from 2 per cent last month to 4.5 per cent in November.
Mr Campbell said he was “massively excited by the cost- cutting process” in both the public and private sectors.
The trust owns Jumbo, a discount retailer, which he said would benefit from the Greeks’ drive for austerity.
“It was a great growth stock before Greece imploded and I think next year it will be back to the same profit it had before the recession,” the manager said.
He has also bought into the Hellenic Exchange, which he said was benefiting from refinancing companies and people returning to the Greek market.
The trust’s discount moved to 9.3 per cent in recent months, which according to data from the Association of Investment Companies is the narrowest it has been in the past 10 years.
Mr Campbell said that discounts had moved in across the European Smaller Companies sector, as renewed optimism in the region had prompted inflows.
“[It] reflects more demand for Europe,” he said. “A lot of mutual flows are very strong after being weak for a number of years.”
The trust has outperformed in one-, three- and five-year periods, compared to the Euromoney (formerly HSBC) Smaller Europe ex UK index.
In five years, the trust has delivered a share price total return of 152.5 per cent compared with 122.3 per cent rise for the index, according to FE Analytics.