Mr Cosh said his holding in Italian asset manager Azimut – his top stock at 3.9 per cent as at January 31 – rose by 94.2 per cent in 2013 while top 10 holding Aareal Bank climbed 88 per cent throughout the year.
The trust delivered a share-price total return of 47.2 per cent in 2013, beating the 36.6 per cent return from the benchmark HSBC Smaller Europe ex UK index, according to FE Analytics.
It has also strongly outperformed the benchmark in five years with a return of 281.5 per cent against the index’s 179.3 per cent, although Mr Cosh only took control in October 2011 after former manager Paras Anand left the group.
The manager said one of the reasons the trust had been able to deliver strong performance throughout the recovery in European markets was because he had “not been dogmatic about where we find quality companies”.
“During the crisis we saw that the biggest component of value in the markets was the financial sector as investors had abandoned these companies wholesale,” Mr Cosh said in the trust’s full year results for 2013.
“This presented opportunities to invest in quality businesses at significant discounts to their intrinsic values. These were the companies that drove performance in 2013.”
The manager said Azimut had benefited from a record year of inflows as it took advantage of problems faced by the Italian banking industry – which is the country’s dominant force in asset management.
Mr Cosh said these problems were “something we expect to continue” and therefore would be supportive of Azimut.
Mr Cosh said Aareal Bank, a European property lender, had seen its market position improve as its “competitors struggle with the poor lending decisions that they made during the previous debt fuelled boom”.
“This is one of the themes of our investments in financials,” Mr Cosh said.
“This is an area which has seen massive capital retrenchment and destruction, but those that navigated through the crisis are in strong positions now and able to make improving returns.
“This is certainly not reflected in their valuations.”
Mr Cosh acknowledged some of the stocks which did not perform so strongly, including German chemical business Lanxess, which fell 27.4 per cent after a profit warning.
“It became apparent to us that the market positions of this company were not as strong as we initially thought, and that in particular they did not have pricing power with their customers,” Mr Cosh said.
“Because we concluded that the investment case was broken we sold the stock.”
The manager said German engineering business Andritz also fell 4 per cent in 2013 after “disappointing operating performance” and Irish cider producer C&C Group fell 2.4 per cent after “the disappointing development from their US business”.
Elsewhere, the manager said while 2013 marked Europe emerging from a “record long recession” with signals of economic growth such as Purchasing Managers’ index data moving into “expansionist territory”, some “caution” was still warranted.
“When the wider investment community is complacent about the investment outlook and consensus is all looking in the direction of recovery, we need to be a little cautious,” Mr Cosh said.
“Particularly when the improvement in growth of company profits and profitability in Europe is likely to be slow.”
