European euphoria: the equity managers top selectors are backing

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Difficulties on the continent may be persisting but Citywire Global finds a host of names professional investors are following – or keeping on their radar – in the European equity sector.

Jean-Christophe Rochat

Banque Heritage (Geneva)

Despite the confirmed slowdown of the global economy and the political uncertainties which prevail in Europe, we have become more constructive on the European region since September 2012.

Indeed, we believe that the  European Central Bank's bond-buying plan (OMTs), announced by Mario Draghi in September, should support the European equity markets and ease tensions in the eurozone.

This move along with the announcement of the Federal Reserve’s QE3 has already clearly diminished tail risks; volatility has decreased, and financial markets have climbed significantly.

This safety cushion, combined with the attractive valuation of European equity markets, has convinced us that we could see a continued rebound in the region’s financial markets.

How did we play this change in our portfolio? We have increased our investment in the Allianz RCM Europe Growth fund which has been on our recommended list now for many years.

Managed by Thorsten Winkelmann according to a pure bottom-up approach, the fund invests in companies which generate strong cashflow in different market conditions, have little or no leverage on their balance sheets, and have a high quality of franchise.

The fund has been able to deliver a strong outperformance over the year, and we are convinced that its positioning will continue to generate strong returns in the current uncertain environment, thanks to the quality of the underlying assets.

Marcel de Kleer

Wealth Management Partners (Amsterdam)

We always have exposure but this year we sold out of one of our European funds in July.

However, with hindsight, it perhaps wasn’t good timing because right after that we had the announcement of QE3 and then the European Central Bank rolled out the OMT as well. Both were very favourable for European equities.

Nevertheless, for the long term we are quite happy with this positioning because fundamentally there is still a lot of work to be done in the eurozone. We don’t think that the ECB can tackle it alone and more fundamental changes are needed which will take time. We do believe that growth will be low in the eurozone.

At the moment, we are still underweight Europe. At the time we sold out of the exposure we were invested in three European funds and choosing which one to sell was difficult because we were quite happy with all three of them.

But, at the end of the day, we opted to sell out of the Henderson HF Pan European fund.

This was guided by the overall allocation decision and not because we were unhappy with the fund itself - Tim Stevenson did well but our other managers did even better. These were Fidelity’s FAST Europe fund, run by Anas Chakra, and also BlackRock’s BGF Continental European Flexible fund under Alister Hibbert.

We don’t tend to have a big underweight to European equities because of valuations, which are cheap, but you need to look at the fundamentals as well. Fundamental changes are needed in the region and we don’t see that improving in the near future.

Robin Curry-Lindahl

LCL Asset Management AB (Stockholm)

Our investment allocation is guided by very long-term views, both economically and geopolitically, on the world situation and trying to determine what sectors and regions will benefit from these far reaching movements.

We are underweight European equities for the time being considering most of the European countries are in a recession. The IMF seems to conclude that the austerity measures are squeezing the life out of the eurozone economy.

Austerity plans and tax increases have led to a severe downward spiral of lower growth, lower tax revenue, more cuts, lower growth, lower tax revenue....etc. If we do not have growth in the economy, the measures taken by the central banks have little chance of success.

This validates our long-term euro bearish view.

The stock market is supported by huge liquidity created by central banks and this creates a wealth effect, but it is unsustainable. There is no impact whatsoever on the economy.

All this free cash and easy money can temporarily lift the stock market. That's fine because it makes a sensation of wealth and hopefully people spend and consume. This may be the last card the central banks can play.

There might be a new round of massive fiscal spending that may stabilise the eurozone and reduce social unrest, but it will push debt-to-equity ratios even higher. It will mean a much bigger supply of euros will be thrown onto the market. That alone can lead to a weaker euro against all currencies.

In spite of the eurozone crisis, we are looking at the Alken European Opportunities fund, which has ridden well on this year's rally and also on Ulysses LT European Opportunity fund, which has performed well.