Wouter Volckaert said his heightened interest in European holdings was not being driven by quantitative easing, rather that credit growth indicators such as bank lending to corporates, sentiment of CEOs, output of factories and other leading indicators were looking positive, suggesting improved economic momentum.
The manager of the £154m investment trust said in a recent update to clients: “Also, people don’t have big expectations. That sets themselves up for earnings surprises.”
He said the weaker euro will also give companies “a nice boost” which can help through cheaper export costs.
“Adding that all together, that is why we are getting more positive on Europe.”
The trust is currently trading on a 7.7% discount to NAV, with a share price of 399p. It has lagged its AIC Global sector benchmark over one, three and five years by NAV total return. Over three years the trust posted NAV return of 34.5% while its share price returned 37.9%. The peer group average delivered 49.3%.
Volckaert has added 10% to his US exposure, which now represents more than half the portfolio – by far the largest regional position.
“There was better economic momentum in the US last year compared to anywhere else and the anticipation of dollar strength because the US was going to be the first [central bank] to increase interest rates.”
He also enjoyed the breadth of choice in the US offering “a lot of good, solid companies I could buy”.
“I have been positive and it paid off, actually a bit more than I had hoped because the dollar went up more than I anticipated.”
But the manager is not taking profits yet, expecting a longer-term cycle and a robust currency.
“I think the dollar will be will be stronger for longer but it will not be a one-way trade – we will have corrections but I am keeping positive on the US. If I do add money to Europe it will come from the UK.”
He suggested the uncertainty from the election looked like causing further volatility he hoped to avoid. UK is currently 14.5% of the trust.
