JOHCM CONTINENTAL EUROPEAN FUND: Long-term investors have been rewarded and returns could rise further despite Covid
- £515million fund is run by UK asset manager JO Hambro Capital Management
- Investors who put money in ten years ago have seen returns of 227%
Investment fund JOHCM Continental European has just celebrated its 20th anniversary – and rightly so.
The £515million fund, run by UK asset manager JO Hambro Capital Management, has outperformed its benchmark (the MSCI Europe ex UK Index) in more years than it has underperformed.
In the process, it has provided solid returns for long-term investors – 595 per cent for those in at the start in November 2001 and 227 per cent for investors who put money in ten years ago.
Investors who put money in ten years ago have seen returns of 227%.
Linchpin of the fund for a big chunk of its life has been investment manager Paul Wild who has had a hand on the tiller for 14 years.
Wild is confident that the fund can continue to deliver good returns, irrespective of the threat to markets and economic growth posed by Omicron.
‘It’s clear that coronavirus will be with us for a long time,’ he says, ‘but I think the world has changed dramatically since early 2020 and companies have adapted prodigiously and effectively.’
Hopeful that most European countries will not go into full lockdown in the coming weeks, Wild believes that many companies could enjoy stronger earnings growth next year than many analysts are predicting.
He says: ‘If some of the supply chain issues ease, gas prices stop rising and consumers spend some of the savings they have built up since March 2020, then the outlook for company earnings is a favourable one.’
The fund has nearly 30% of its assets in financial stocks
The fund is invested across 40 companies – UK shares do not feature in the portfolio.
Stock selection is dictated by the big investment themes that Wild and his assistant Justin MacGregor believe will dominate markets in the coming months and years.
Three themes currently dominate – the cheapness of banking stocks, companies temporarily hit by supply issues (primarily car manufacturers) and Europe’s environmental transition which Wild believes is more aggressive than elsewhere.
It’s no surprise, therefore, that the fund has nearly 30 per cent of its assets in financial stocks – the likes of Axa, Societe Generale, Santander and Italian bank Unicredit.
‘It looks like we are reaching a turning point in Europe with regards to monetary policy,’ says Wild. ‘Inflation is going up and interest rates will edge higher in 2023 if not next year. Such an environment will allow banks to increase their margins and make more profits.’
Among its automobile holdings are key stakes in German giants Daimler (owner of the Mercedes brand) and Volkswagen (Audi, Porsche, Seat and Skoda). With regards to the environment, its biggest holding is in French waste management company Veolia. It also has a stake in German energy giant RWE.
Over the 20 calendar years that the fund has existed, it has underperformed in 2004, 2007 and 2017 through to 2019. Wild says the fund’s more recent under-performance has been a result of being underweight in quality growth stocks.
But as inflation and interest rates rise, he believes the fund’s emphasis on undervalued stocks will reap dividends.
JOHCM Continental European is not appropriate for income seekers.
It also fails to make it on to FundCalibre’s list of elite European (excluding UK) funds. Those that do include BlackRock European Dynamic and Crux European Special Situations.
The fund’s stock market identification code is B993PD0 and its annual charges total 0.7 per cent. JO Hambro Capital Investment Management runs assets in excess of £31billion.