Rob Burnett, the manager of Neptune’s European Opportunities vehicle, has admitted it took “an embarrassingly long time” for the fund’s positioning to pay off after a three-year-old switch to value eventually saw the strategy become one of 2016’s standout performers.
The asset manager’s head of European equities, who has worked on its £289m fund since 2005, said the value rally that took off in the second half of 2016 had suited the portfolio.
According to FE Analytics, the fund was the second best fund in the IA Europe ex UK sector in 2016, behind Marlborough European Multi-Cap, returning 29.1 per cent versus an average of 16.4 per cent from the peer group.
However, this return to form has come after years of pain for the fund’s investors. Between the start of 2013 and the end of 2015 the vehicle returned 23.8 per cent, lagging the peer group’s average of 36.5 per cent and the MSCI Europe ex-UK index.
“We have been waiting for this exact environment for a really long time – for a really embarrassingly long time,” Mr Burnett said. “The performance was good last year and 50/50 in 2015, but it was rubbish in 2014 and not that good in 2013. We were positioned for this market.”
He added: “The most important single concept that supported us [in 2016] is value. We started having an out and out value style in 2013.”
Mr Burnett believes the recent dominance of ‘quality’ investing over value is an anomaly in historical terms, with a value tilt now likely to pay off in the longer term.
“We think the conditions are in place to reassert the supremacy that has been seen over the past 100 years. We have had these periods [of quality dominance] and it happens that this one has been longer than we thought.”
The portfolio has significant exposure to unloved but resurgent industries – such as financials, materials and industrials – with the trio accounting for more than 90 per cent of the fund.
With many holdings having rallied in recent months, Mr Burnett has been taking profits on certain stocks but maintaining sector preferences.
“We haven’t changed that much,” he said. “We continue to be overweight banks and underweight consumer staples. In the past month or so we have slightly reduced our exposure to French banks, [including] BNP Paribas after it rallied a lot. Societe Generale is a significant position for us but we have trimmed a bit.”
He has also taken profits in areas such as materials, where favoured names including Yara International, which focuses on agricultural products, have rallied.
“We have gone neutral on a couple of the value stocks in healthcare, like Bayer,” he added.
The manager also claimed 2016’s turn in fortune would not be short-lived, and said opportunities remained for value managers.
“We rotate out of the best performers and luckily we are finding new ideas that constitute good value,” he said.
As part of this, Mr Burnett is adding to some Spanish banks, and closely watching the banking sector in Italy.