JOHCM Continental European - political headwinds abating

Kate Marshall | Wed 02 August 2017

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• Paul Wild combines his views on current economic conditions with individual stock analysis
• He is more positive in his outlook for Europe and has positioned the fund accordingly
• Fund is currently tilted towards more domestically-focused areas of the market

Our view

In our hunt for the highest-quality fund managers, we seek those who can add value for investors over the long term through superior stock selection. Some managers also aim to deliver outperformance by taking a view of the wider economic environment and positioning their portfolio accordingly. Few managers are able to do so successfully, but we feel Paul Wild, manager of the JOHCM Continental European Fund, is an exception to the rule.

The manager’s approach of combining his views on economic and market conditions with individual company analysis has delivered strong long-term returns for investors. Over the past 10 years the fund has grown 110.1%* compared with 80% for the FTSE World Europe ex UK index, although please remember past performance is not a guide to future returns.

Past performance is not a guide to future returns. Source: *Lipper IM to 30/06/2017

The fund provides broad and diversified exposure to a variety of sectors. The exposure to each sector does not differ markedly from the fund’s benchmark, and this means performance does not tend to deviate significantly from the broader European market. That said, the manager has delivered respectable outperformance over the long term and we feel he has one of the most consistent track records in the European sector, although periods of underperformance should also be expected.

We recently spoke to the manager and believe he remains as enthusiastic and focused on performance as ever. We feel his long-term, disciplined investment approach will aid returns over the long term and the fund remains on the Wealth 150 list of our favourite funds across the major sectors.

Is Europe turning a corner?

Over the past year Europe has faced an abundance of political headwinds; from the UK’s vote to leave the European Union to the US Presidential election and the Italian referendum on constitutional reform.

Paul Wild believes Europe is now heading to a period of political cohesiveness. Furthermore, confidence across the region is improving; manufacturing orders are picking up; while there are also expectations that the European Central Bank could soon be in a position to withdraw its quantitative easing programme, originally aimed at stimulating growth.

Against an improving economic backdrop Paul Wild tilted the fund towards more economically-sensitive industries, such as financials and media companies, earlier this year. Yet some of these sectors have continued to underperform more defensive areas of the market. As such, the fund experienced a short-term period of performance in the first half of the year.

Source: JOHCM, correct at 30/06/2017

The manager’s stock picking has also been weaker in the shorter term, with certain companies in the consumer and basic materials sectors holding back performance. Paul Wild has taken advantage of this period of weakness, however, by adding to materials companies at cheaper share prices. Over the longer term our analysis suggests the manager has added value through good stock selection.

Overall, Paul Wild’s more positive outlook for the continent means he has focused the fund more towards companies that rely on domestic, rather than international demand, for their earnings. He has recently reduced exposure to a number of companies that derive a greater proportion of their earnings in the US, for example, such as building materials supplier CRH. We would therefore expect the fund to perform well if more domestically-focused companies perform well in the near term, although the reverse is also true.

Please note this fund carries a performance fee details of which can be found in the fund’s Key Investor Information Document. As this is an offshore fund, investors will not normally be covered by the Financial Services Compensation Scheme.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.