Euro Stars AAA-rated Heslop says the transformation of the US manufacturing landscape on the back of cheap shale gas and oil is sparking rapid growth in North America, which will in turn benefit many of Europe’s manufacturing exporters.
He told Citywire Global: ‘We expect to see further rapid growth in the US manufacturing base and the development of cheap shale gas will result in a reindustrialisation of the US. European industrials will be able to feed into that which should make up for slower growth in their home markets.’
Heslop is keeping faith with industrials which remain the biggest overweight in the €1.7 billion fund, making up almost a third of the portfolio compared to the benchmark weighting of 23% at the end of June.
At the same time healthcare made up around 17% of the fund compared to the benchmark weighting of 9% while financials continued to be the fund’s biggest sector underweight at 7%, less than a third the benchmark weighting.
‘We continue to focus on companies with strong business models and industrials have many such quality businesses, particularly in the Nordic region and Germany. European domestic economies remain challenged so these companies need to be exporting their goods to faster growing regions of the world.’
While he acknowledged that the recent weakening of Japan’s currency had made many of Japan’s exporters more competitive he remains sanguine that Europe’s small and mid-cap exporters could continue to compete on the global stage.
‘The weakening of the yen is making some of Japan’s companies more competitive and the euro remains weak. [The weakening yen] changes the landscape a little but the story remains intact because markets are more concerned about emerging market growth where a lot of these companies operate.'
The fund has a typically low turnover approach but Heslop says turnover levels had fallen even further since he took over as lead manager of the fund from David Dudding at the start of the year.
Recent activity has included topping up on liquid natural gas storage group Vopak after recent market weakness while French electrical goods distributor Rexel has been bought and built up to 2% of the fund.
Heslop has taken profits on Swedish metallurgy business Hoganas and testing company business Bureau Veritas, which he believes had reached stretched valuations.
He has added to fellow German industrial Andritz after it was sold down on fears over a contract it has signed in Brazil. Heslop said the sell off masked the fact that Andritz was a very well diversified company which included pulp, steel and hydroelectric businesses.
‘It did not secure the price it expected in Brazil but we have topped it up along with deep sea oil services group Subsea 7 which has a fixed contract with Brazilian oil giant Petrobras to develop deep sea oil fields.'
‘Deep sea is an attractive part of the market which is not without its risks but we believe in the long term need for oil and it is getting harder to access so pipeline laying services are needed. A greater proportion of deep sea infrastructure will be on the sea bed and these companies are well placed also for the North Sea, where the life of the oil fields is now being extended. ‘
Over the five years to the end of June the fund has returned 77.7% compared to 30.2% by its HSBC Smaller European (ex UK) Companies benchmark.