Trustnet Magazine Issue 32 September 2017 | Page 30
STOCKPICKER
WHAT I BOUGHT LAST
CF MITON EUROPEAN
OPPORTUNITIES
7IM’s Tony Lawrence says this fund’s tactic of investing away from
stocks most vulnerable to the whims of passive flows offers a
smoother ride and higher returns
THROUGH THE BACKDOOR
James Illsley of the JPM UK Equity Core fund says you don’t need to leave the comfort of
the FTSE to give your portfolio a global reach
U
K EQUITIES STILL OFFER GOOD
LONG-TERM VALUE. On a cyclically
adjusted Shiller price/earnings ratio
(which uses trailing 10-year average
inflation-adjusted earnings), the market
is trading at more than 15 per cent below its long-
term average. As the global economy expands, UK
COCA-COLA HELLENIC MAY
NOT BE THE FIRST NAME that
springs to mind for UK investors
in search of a consumer staples
stock, but it has delivered a 53 per
cent return this year. The bottler for
Coca-Cola operates in 28 countries
from Armenia to Switzerland,
underlining the global nature
of the UK stockmarket. With a
tailwind of economic growth
across target markets, coupled
with an unswerving focus on
margin improvements, analysts
have increased their 2018 earnings
forecasts from €1.18 to €1.29.
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equities, which derive more than 70 per cent of
revenues from overseas, should continue to see
earnings growth. In terms of valuations, we can’t see
this changing soon: we expect the FTSE 100 to make
further gains and the 4 per cent average yield on the
FTSE All Share looks attractive considering cash and
bonds currently pay out next to nothing.
DESPITE ITS FOOTPRINT, CAR
DEALER INCHCAPE has yet
to become a household name.
It operates in 29 countries and
is trusted by luxury retailers to
promote their products in a high-
quality manner, especially in some
of the smaller markets where it is
the exclusive distributor. Revenues
increased from £7.8bn to £8.5bn
in the 12 months to June 2017 and
Inchcape’s international coverage
affords it a degree of insulation
from the post-Brexit uncertainty,
separating it from most other
retailers in the UK.
WEIR, A MANUFACTURER OF
PUMPS FOR MINERS AND OIL
& GAS COMPANIES, has recently
seen a rebound in revenue growth,
primarily driven by the recovery
in North American shale drilling.
The collapse in the rig count
through 2015 meant Weir’s oil &
gas business, which has historically
been highly profitable, just about
broke even last year. However,
with activity having resumed,
revenue expectations for 2017 have
increased by around 30 per cent in
the last 12 months and margins are
quickly recovering.
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W
E’VE MADE NO SECRET OF
OUR CURRENT RISK-OFF
POSITIONING, so it may seem
curious that we remain
overweight European equities
compared with our standard asset allocation.
This is perhaps even more surprising given
our most recent purchase in this space was a
fund with a mid-cap bias, which may be
perceived as higher up the risk scale than
traditional large-cap European equities.
However, this fund has actually held up well
during the post-Macron weak period. While
this is perhaps too short a timeframe to prove
the diversifying benefits of investing in
smaller companies, it is a good start.
It seems Europe is always punished
excessively when markets begin to falter;
take the recent “fire & fury” episode, where
Europe’s largest stocks sold off as much as the
South Korean market. In contrast, US equities
dropped just over half as much and even
“riskier” assets such as frontier markets, an
area we also like, stayed broadly flat.
However, if you invest further down the
capitalisation spectrum, away from the stocks
most vulnerable to the whims of passive
flows, you are typically rewarded with a
smoother ride and a better return.
While the European rally peaked around
the time of Emmanuel Macron’s victory
in the French elections and we accept it
can be vulnerable to market jitters, we still
fundamentally like the continent. As a result,
we have held off from taking profits, although
we appreciate we need to be careful with how
we play this position.
Europe still feels like a good place to be,
even if the market may not currently agree:
political risks have subsided, earnings have
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picked up and the fundamental backdrop is
much improved. So we think Europe remains
attractive, and in the context of the recent
softer performance, possibly even more so.
Miton European Opportunities, for us, is a
fund that complements our overall European
exposure, investing in niche companies
that are more immune to economic ups and
downs and under-researched by analysts – this
creates opportunities. It is also why it fits in
with our current risk-off positioning.
The fund eschews more expensive, larger
cap defensive growth stocks that may be
vulnerable to rising rates. It favours mid-size
companies with strong balance sheets and a
competitive edge that offers superior growth
potential in a low-growth world.
Miton European Opportunities is one
for the bottom drawer, hunting for under-
researched companies whose performance is
uncorrelated with the wider economy. The
funds universe is crowded with European “me
too” products, but growth-oriented managers
hunting in the mid-cap space are far thinner
on the ground.
Tony Lawrence is an investment manager on
7IM’s multi-manager team
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