JOHCM Continental European
JOHCM Continental European is one of the better Europe ex UK funds going.
Lead manager Rod Marsden has run this fund since launch its November 2001 launch and boasts three decades of experience. Co-manager Paul Wild joined in 2003, but was part of Marsden's team at Sanwa Asset Management and this past collaboration strengthens their work. The duo rely on their joint analysis to find portfolio picks as JOHCM does not host a central analyst staff.
The managers start with a top-down approach to form the portfolio. Marsden’s experience over numerous market cycles is key as few managers can consistently succeed in their top-down calls, and even fewer can run a top-down strategy in a successful manner. They take a macro view on sectors and then hunt for stocks which fit these views across the pan-European equity universe. They use brokers and third party research to help generate ideas and then independently assess companies to identify those with sustainable, high quality growth, earnings momentum, and free cash flows.
This process yields a portfolio that skews towards Europe’s largest companies. The managers have moved even higher up the market-cap scale recently relative to their category peers as part of a defensive move in the current market environment. They have also almost entirely avoided smaller companies this year, which has worked in their favour. As part of their top-down calls, the managers added to financials--especially in the UK--in mid 2008 as they thought valuations were attractive and the regulator was doing the right things to restore confidence. That financials weight has reversed course more recently, falling from 27% of equities to 19% at 31 October, however.
Those kinds of moves come with risk, but we believe investors are in capable hands here. Indeed, Marsden has guided the fund to a top decile return versus its Morningstar category peers over the past five years, and he is on course for a top-third showing thus far in 2008 as smart overweights in healthcare and telecom have helped the fund. (Like most equity offerings, however, the fund's absolute loss is sharp at 28.8% through 12 December.)
The fund’s experienced management and modest expenses make it an appealing Europe ex-UK offering. We also like J O Hambro Capital Management as an organisation--the firm puts investing before marketing, keeps costs low, and sets capacity limits on its funds--all of which should work in investors' favour.
