The European oil and gas industry and ‘Ryanair financials’ are areas which Invesco Perpetual’s Adrian Bignell hopes will spark a further take-off in performance this year.
The manager began 2016 with what could be seen as a bold decision, moving from neutral to overweight exposure to oil and gas.
He now holds 6.5 per cent of his £122m European Opportunities fund in oil majors and exploration and production companies, along with roughly 2 per cent in oil services.
He said: “I’ve been increasing my exposure and sadly this has been very painful since the oil price hit $30 [last week].”
However, he added: “Global demand grows by about 1m barrels a day and we have a surplus supply of around 1.5m a day.
“What is making me optimistic is as the price goes [below] $30, there are a number of fields that are unprofitable that will be shut, and this is a supply side response to help us into supply/demand balance. We are getting close to the inflection point.”
The manager aims to split the fund’s exposure equally between large, mid and small caps, but admitted finding better returns and value in some of the smaller firms. Mr Bignell has experience in this area through his £168m Invesco Perpetual European Smaller Companies fund.
His largest exposure remains to financials at 23 per cent of the fund, but the emphasis here has shifted to new small cap entrants and being underweight European banks.
Mr Bignell has been buying up shares in investment and brokerage firms that have opted for different pricing models to traditional banks, creating a price and business-model battle akin to that of “Ryanair and British Airways”.
He said: “At the small and mid-cap level there are really interesting financial technol-ogy (fintech) firms. Leonteq came to market with a different cost base to structured products suppliers, like Ryanair arriving next to British Airways.
“This is the opportunity for fintech. Starting with the right cost base and superior technology to the incumbent banks, they are very quickly able to generate really good returns at a fraction of the price [for banks].”
Elsewhere in financials, the Opportunities fund holds 3.3 per cent in Flow Traders, an Amsterdam-based market maker for exchange-traded products (ETPs). Mr Bignell said the ETP market was set to grow by 15 per cent per annum over the next four years. Flow listed in July 2015 valued at roughly €1.5bn (£1.1bn) and has a 70 per cent cash to payout ratio, he added.
He also holds the German exchange Deutsche Boerse (2.5 per cent of his portfolio) and 4.9 per cent in Leonteq.
Mr Bignell has also looked to Avanza, a Swedish online brokerage firm, which he described as the Hargreaves Lansdown of Sweden. He said it had a 2.5 per cent market share with an “excellent online product offering and prices”, and a dividend growing at 15-20 per cent a year.
The manager’s European Opportunities fund has returned 40.6 per cent over three years and 8.1 per cent over one, compared with IA Europe ex-UK sector average returns of 25.7 and 3.8 per cent, according to FE Analytics.