Franklin Templeton’s star European equities manager Philippe Brugère-Trélat has moved out of the defensive stocks that have traditionally made up the bulk of his European equity funds.
The manager of the €3.4bn (£2.8bn) Franklin Mutual European fund has cut back on the “very expensive” food, drink and tobacco sectors in favour of consumer discretionary stocks and more domestic-orientated holdings.
“In the case of Europe, economic, financial and political conditions have been improving, which is providing investors an opportunity to purchase strong corporate assets at what we believe to be attractive prices at a time when the region appears on the cusp of a recovery,” Mr Brugère-Trélat said.
“During the European debt crisis, European corporates reacted vigorously by cutting their cost base; many are much leaner and meaner today. Even a modest improvement in the economy could improve their operating leverage further and produce earnings that may well surprise, particularly at a time when general market expectations are at rock bottom.
“Rock-bottom expectations tell me that risks of disappointment are likely low, and the upside potential could be fairly good – assuming there are no unexpected shocks.”
While the manager admitted the European recovery “remains fragile” as growth slowly returns following a second recession in four years, he maintained that the ECB “still has at its disposal a very large and unused arsenal of measures to combat deflation”.
Elsewhere, the manager said he is “not very keen on European banks”, favouring insurance firms with less debt and better risk-management records.
Mr Brugère-Trélat oversees three Luxembourg-domiciled products available to UK investors. The sterling share class of the largest, the Mutual European fund, has gained 82.5 per cent in five years to February 17, according to FE Analytics, compared with a 92.3 per cent rise in the MSCI Europe index.