Jupiter JGF European Opportunities manager Cedric de Fonclare expects the current market volatility to continue for the rest of 2013 as the West continues its deleveraging process and emerging markets' economic health remains in doubt.
Euro Stars A-rated de Fonclare, who also runs the Jupiter European Special Situations fund, told Citywire Global that market sentiment would continue to swing back and forth, which in turn would make it very hard to second guess the short term direction of the market.
Volatility to continue
'It is important in these sorts of markets not to overreact, but to try to mitigate the risks with a diverse portfolio,' he said.
Unlike many of his European peers, de Fonclare has a significant weighting to UK-listed companies because of their international makeup and to companies exposed to North America. However, he continues to avoid most Southern European banks.
'The UK economy is full of international names and has a disproportionate exposure to the US through companies like Inmarsat, Experian and Weir Group. The North American economic cycle is very different to the Asian cycle so we can capture a different growth trend.'
He has also started to introduce more diversity within his financial holdings, with the recent additions of Unicredit, BNP Paribas and Barclays, although he has reduced his exposure to Scandinavian banks after a strong run. He now has 10% in banks compared to the benchmark's 13%.
'A year ago we started to address financials with a stake in UBS but in terms of Southern European banks you have to watch the spreads and bond behaviour in Spain and Italy closely.'
De Fonclare is also keeping a close eye on the valuations of quality growth stocks, with many still trading quite close to their historic highs.
He is avoiding Nestle on the view that it looks a little pricey and instead prefers to play the food and beverage sector.
He is doing this through pharma stocks and industrial bread maker Aryzta, a Swiss firm that provides ingredients to standardise the taste of bread around the world.
'We feel you have to look beyond Nestlé to find better value elsewhere. It is trading at 17.5 times price to earnings but has had disappointing growth for the last three quarters. Compare that to global pharma group Roche. It is the most expensive in its sector in Europe but still only on 15.5 times with a decent dividend yield, and with most of its patent issues behind it.'
'We are playing food and beverages by not going for the obvious. Aryzta can consolidate the market by buying up local suppliers. The Chinese may not be eating baguettes just yet but when you go to Singapore you will see this starting to happen.'
While he is avoiding Nestlé, de Fonclare does hold around 20% of the fund in quality growth stocks.
'My approach with quality growth is to be very disciplined on valuation and very selective on quality. Our preferred quality growth stocks are [bio science firms] Syngenta and Chr Hansen, while I have been reducing my weighting to Sage.'