July 2008

PERFORMANCE: Finding Opportunities in Europe

Looking at the fund’s overall exposure is another indicator that this is a fund that is truly active, writes Niklas Tell Cédric de Fonclare, manager of Luxembourg-domiciled Jupiter European Opportunities Fund, says that after a difficult 2007 this year should provide a better stock-picking environment. So far he has been right.

The blueprint for the Jupiter European Opportunities Fund is easy to like and the investment philosophy is clearly outlined in five headings:
• Bottom up: ie, stock-picking and no macro bet
• Ignore noise: ie, focus on fundamentals
• Genuine active management: ie, risk is about business risk and not about index risk
• Direct company contact: ie, manager knows what he invests in
• Performance driven: ie, focus on returns and not asset gathering.

De Fonclare joined Jupiter in 1999 and manages several European funds and mandates. He has managed the Jupiter European Opportunities Sicav since its launch in 2001 and over this period he has proved that his investment philosophy is working. Even 2002 and 2003, when the fund underperformed its benchmark by 0.58% and 3.6% respectively, were actually fairly good years for the manager if you consider that the fund had a TER of some 10% due to a very small asset base (basically seed capital from then owner Commerzbank). The fund was in the first quartile in 2004, 2005 and 2006, but slipped to second quartile last year.

“In the second quarter last year all cyclical stocks did very well and I was not prepared to chase these stocks. I was careful on what to pay and that hurt our relative performance. That is an example of how focusing on fundamentals can also hurt us in the short term,” he says.

He also gives an example where focusing on fundamentals has helped performance and mentions OPAP, a holding in his portfolio. OPAP runs the lottery in Greece and because it was in the ‘wrong’ category (consumer/retail), the stock was punished and was recently down 30%. De Fonclare did not agree that the company was fundamentally in a worse position and bought the stock. It has since rebounded.

Looking at the fund’s overall exposure is another indicator that this is a fund that is truly active. Back in 2006 the fund had some 45% in mid caps – an exposure that had fallen to some 30% in June last year and to about 15% at the time of our interview in May. He says that this is the lowest level of mid cap exposure he has ever had and that it will probably take time before it increases again.

The fund is fairly concentrated when it comes to number of holdings, but risk is controlled thanks to an even distribution of assets across these holdings. The manager says that risk is not about measuring deviation from a benchmark, but rather something that is built into the portfolio construction and he makes sure he is exposed to different economic drivers – or investment themes as he calls them.

De Fonclare says that 2007 was a very difficult year for him as a stock picker as the valuation differences between ‘good’ and ‘bad’ stocks was very small. This is now starting to change and he says that the current challenging environment will sort winners from losers and that 2008 should be a better year. So far he is right and as of the end of May the fund is ahead of the index.

De Fonclare is a truly active manager and he is sensitive when it comes to high valuations – in short he manages a solid offering for investors looking for European equity exposure.

Niklas Tell is a partner at Tell Media Group AB
© funds europe 2008

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