For the last 12 months the JPM Europe Dynamic fund, which forms part of the suite of European funds overseen by Barakos, has had a pro-domestic economy bias, and its biggest overweight has been to Ireland.
“What matters is the valuation you’re paying and where the positive or negative surprises are going to come. We’ve focused on cyclical, domestic stocks. In terms of regions we’ve liked certain peripheral areas.”
In Ireland, he feels there are rewards for the risks being taken.
“Ireland has seen more foreign direct investment (FDI) in the last five years than in the last half century.”
Bank of Ireland is one stock that has performed well, and remains a good investment today, in his view.
The European equities team at JP Morgan Asset Management takes a different approach to many groups, with a strong focus on behavioural finance as a core part of the process.
Barakos said the philosophy used on the funds for which he is responsible is simple, transparent and intuitive.
“We’re looking for attractively valued, high quality companies with good momentum that can outperform the market. We can generate as much being underweight stocks we don’t like, and in some portfolios we can short these stocks.” Momentum, in his view, is a proxy for growth.
The difference in the way his team does things is in the execution, says Barakos.
“The key differentiator is investment performance. We’re disciplined, and we’re very big on controlling our emotions as human beings. Behavioural biases can lead to systematic anomalies to certain investment styles. The question is can you execute and remain unemotional? Do you have the mental toughness to go against the herd and at least analyse unattractive, undervalued companies? Can you remain contrarian? We’ve developed a style that pays us for [portfolio] insurance.”
JPMAM has an advantage in terms of its scale and having the support of senior management to allow its fund managers to adopt a long time horizon, said Barakos.
“It’s about story telling versus what value you are getting from the story. You’ve got to have the long-term view. A boutique with a higher fixed cost base can’t always afford to do that. We’ve got a diversified book of business that we’re responsible for in the European equities piece. Senior management support means we can take a multi-year view across the piece. When you have a tough period you can stick by your convictions rather than panicking. It gives you a clearer mind in terms of analysing the investment opportunities in a consistent way.”
