Performance in 2013 was boosted by its holding of Azimut, an Italian asset manager, as net inflows remained strong throughout the year and received a number of earnings upgrades. “We do not believe the investment thesis has entirely played out, so we remain investors in the stock.”
Another positive contributor included the UK stock Greencore, which manufactures and distributes a wide range of prepared foods to the consumer sector and primary foods to industrial sectors. Mr Rosenfeld notes the company announced strong annual results in September 2013 in spite of challenging conditions in the UK grocery market.
On the flipside, however, a detractor from relative performance was not holding a position in Alcatel-Lucent. The manager explains: “[It] was something of an anomaly. Alcatel has traditionally been a large-cap stock, but for a relatively brief period, the company’s shares plummeted to the point of being included in the MSCI Small Cap Europe index. When the stock rose again it impacted relative performance.”
Looking ahead, like many European managers, Mr Rosenfeld is looking for earnings growth to start to come through in 2014. “Small-cap stocks are highly sensitive to earnings growth, and cannot rely entirely on whole sectors re-rating,” he warns.
“However, in spite of the recent market falls, we still feel there is long-term support for small-cap equities. For example, M&A activity is picking up, which is always good news for small-cap companies targeted by larger businesses and can help lift the entire sector.”
Darius McDermott, managing director, Chelsea Financial Services:
“This fund differs in that it invests in UK as well as continental European companies and it actually has a substantial weighting to the UK of almost 40 per cent. Germany is the next largest region at 15 per cent. This probably explains why the fund has been less volatile in general than its peers.”