Launched in 2000, this £223m fund is managed by Edward Rosenfeld and his team, with the objective of achieving capital growth by investing in shares of small-cap European companies to generate strong, relative returns for investors across a market cycle.
Mr Rosenfeld notes the fund’s investment process “is based on the Lazard philosophy of relative value investing, which looks at the trade-off between valuation and financial productivity”.
He explains: “We look for quality companies that are attractively priced with high or improving returns on capital and high barriers to entry. We believe this enables us to generate consistent results, protecting capital in down markets and participating in market rallies.”
The process has remained unchanged in spite of the market volatility seen in the past few years. Mr Rosenfeld notes: “Like any fund manager, we are aware of macroeconomic issues but we do not allow such matters to dictate where we allocate capital. We are company-focused and rely on our stock-picking acumen to find financially productive businesses. We do not take large sector bets on the back of newsworthy policy announcements or data points, be they positive or negative.”
The fund sits on a level 6 out 7 on the risk-reward scale, while ongoing charges for the C accumulation share class are 0.81 per cent.
For the five years to November 13 2015, the fund’s retail C-accumulation share class has delivered a strong 90.9 per cent return, compared with the MSCI Europe Small Cap index’s gain of 62.7 per cent and the Investment Association European Smaller Companies sector average return of just 58 per cent, data from FE Analytics shows. The vehicle has also managed to outperform both the sector and its benchmark across one- and three-year periods, including a 12-month return of 21.1 per cent against the index’s gain of 14 per cent and the sector average of 14.3 per cent.
Mr Rosenfeld notes: “The European small-cap asset class has done very well in 2015 to the end of October. It has been a strong rally with a good breadth of participation through countries and sectors. The market has been led by healthcare companies, consumer discretionary and IT all registering impressive gains. Unsurprisingly, the only sector that has performed poorly is energy.”
The manager highlights a rebound in 2015 in certain peripheral countries such as Ireland and Italy as a boost to performance, while certain Scandinavian countries have also performed well in the small- and mid-cap space. He says: “The portfolio did well through consistent stock picking and we were able to best the benchmark in almost all sectors. We had good performance in financials [where] a lot of our real estate names did very well.”
Other contributors included Rightmove in the UK, although Mr Rosenfeld admits there have been a few mistakes, such as participating in the initial public offering of HSS Hire. He notes the firm eroded investor confidence after missing earnings forecasts, while management changes and a generally subdued economic outlook have not helped the business.
“We’re no longer invested [in it], but it did negatively impact performance,” he adds.
The manager points out that changes to the portfolio are few, so turnover tends to be lower than the industry average. He explains: “We sell companies either when they are fully valued or when our investment thesis does not play out. Turnover is low because our investment style is designed for the long term, allowing a company to compound on its competitive position and productively use the cashflow generated to either expand or return money to shareholders.”
Looking ahead Mr Rosenfeld remains optimistic on the region, broadly due to the expansionary monetary policy of the European Central Bank. In addition, “a weaker euro and structural reforms that have taken place in some of the periphery countries such as Ireland, Spain and Italy, [means] there is the potential for a proper recovery in those areas”.
EXPERT VIEW
Oliver Stone, head of research and deputy portfolio manager, Fairstone Private Wealth
Managed by Edward Rosenfeld since January 2013, this fund takes a long-term, bottom-up approach. It focuses on attractively priced companies with good cashflows, high or improving returns on equity and high barriers to entry, leading the portfolio to exhibit a ‘growth’ style bias. In spite of this bias, the vehicle has an attractive risk-and-return profile, having outperformed its peer group average in both absolute and risk-adjusted terms in this period, while also protecting investors during falling markets.
