JOHCM Continental European - Europe's economy set to improve
Kate Marshall | Thu 21 November 2019
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- Paul Wild combines his views on the economy with company analysis to run this fund
- A focus on lowly valued companies held back recent performance
- The manager thinks economic conditions could soon be supportive of value stocks
Our view
We view Paul Wild as an experienced fund manager with a sensible approach to investing in European companies.
He does something a little different to some other managers in the European sector. He combines his views on the economy with analysis of individual companies, to work out what areas to invest in. It’s an approach that’s worked well over the long run. But it’s not easy getting the bigger economic calls right, so it won’t necessarily work all the time.
The manager's JOHCM Continental European Fund has been through a weaker patch of performance recently, partly because of his focus on lowly-valued companies that have been out of favour. He has a good longer-term track record though and we view the fund as a reasonable option for exposure to European companies.
The fund doesn't feature on the Wealth 50 list of our favourite funds as we currently have greater conviction in other funds in the Europe sector.
Growth vs. value – is the trend reversing?
'Growth' stocks have outperformed 'value' for several years.
In a world of low interest rates, low bond yields, low inflation and low economic growth, many investors have favoured companies they think have more stable growth prospects. On the other hand, lowly-valued stocks have remained out of favour and haven't performed so well.
Paul Wild doesn't tend to only focus on one type of stock, so the fund has the potential to perform well in a variety of market conditions. He pays attention to company valuations though. In other words, the price he pays for a company's shares should be low compared with its growth prospects.
Wild thinks the share prices of many 'growth' companies have become far too expensive. Instead he's focused on those he thinks offer better value, but recently this has held back the fund's performance. While it's grown 5.1%* over the past year, it's underperformed the 11.5% of the FTSE World Europe ex UK Index. Past performance isn't a guide to future returns.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Oct 14 -
Oct 15 |
Oct 15 -
Oct 16 |
Oct 16 -
Oct 17 |
Oct 17 -
Oct 18 |
Oct 18 -
Oct 19 |
|
| JOHCM Continental European | 10.6% | 20.7% | 15.3% | -5.3% | 5.1% |
| FTSE World Europe ex UK | 5.2% | 19.7% | 19.9% | -5.6% | 11.5% |
Past performance is not a guide to the future. Source: Lipper IM* to 31/10/2019
Wild thinks there's potential for this trend to reverse. In his view, the European economy is heading towards a period of stabilisation, while bond yields have also started to rise, and this could benefit 'value' stocks.
Any improvement in Europe's economy could be heavily influenced by the ongoing US/China trade war though. After all, Europe is heavily dependent on exports, especially some larger countries such as Germany, and many companies make a large portion of their profits overseas. Wild's encouraged by the fact the news flow surrounding the trade war is starting to soften.
What does this mean for the fund?
Wild's recently taken some profits from areas he thinks are now too expensive. This includes the consumer goods sector and companies such as Nestlé.
He's added to areas he thinks offer better value, like banks. This includes Unicredit and Société Générale, whose shares he thinks are trading at much lower prices than their forecasted returns suggest they should. He says they're financially stronger than they used to be too.
He's recently added a range of industrial companies to the fund, including rail transport company Alstom, courier company Deutsche Post and Saint-Gobain, which makes construction materials.
The manager's also found lots of value in French companies, which make up 38% of the fund at the moment. Most carry out business internationally and current holdings include insurer AXA, pharmaceutical firm Sanofi, and aerospace business Airbus.
Please note this is an offshore fund, which means you are not normally entitled to compensation through the UK Financial Services Compensation Scheme.