Investors need to be wary about investing in European financials and car companies, whose share prices have been rising on the back of major eurozone stimulus, Nick Davis has said.
The Polar Capital manager suggested the radical measures instigated by the European Central Bank (ECB), which involve pumping billions of euros into the economy each month, would only provide a “short-term cyclical boost”.
He said the stimulus would “not do much practically” in terms of creating solid investment opportunities for him, adding he only invested in one bank and remained clear of car manufacturers.
“Companies that benefit from quantitative easing are not ones that I would normally invest in,” he said.
Some of the stocks that investors had started to pile into since the start of the easing measures were financials, a sector Mr Davis said he was wary of.
“Low rates and quantitative easing are not good for financials and investors have [become] excessively excited on the back of the stimulus,” he said.
The manager is underweight European financials, holding just one bank – ING – which he bought last month after it resumed paying dividends. He is neutral on insurers.
The other sector he is sceptical of is the car industry.
Several European managers have been recommending cars as an area of the market that is still cheap and which will benefit from the ECB’s easing measures.
European car sales are close to a 25-year low and, as the average age of vehicles is at a high level, managers are predicting a tipping point in demand.
Since the start of this year, BMW has seen its stock price climb from about €89.70 (£66.15) a year ago to €122.60 earlier this month. However, it has come off slightly and was trading at ¤113 last week.
But Mr Davis thought that while these stocks had done well in the run-up to and the period since quantitative easing began, there were still risks.
His main concern was the amount of emerging market exposure such companies had, something he feared investors had not taken full account of. The manager said he had no exposure to cars firms in his fund.
Mr Davis joined Polar Capital from Threadneedle last year and has been running the European Income fund since October 2014.
From launch, the fund has returned 18.6 per cent compared with its benchmark – the MSCI Europe Daily Total Return Net Euro index – which has risen 16.6 per cent, the fund’s factsheet shows.
S&P predicts new European IPOs to increase this year
The number of European companies listing on the stockmarket for the first time is set to pick up throughout the rest of 2015, according to ratings and research agency Standard & Poor’s (S&P).
In a report published last week, the agency said the European initial public offering (IPO) pipeline for 2015 “looks promising”. The report specified S&P expected the IPO market to be more pan-European after the “UK dominance of issuance for the past few years”.