Top performing Alt Ucits manager: European earnings have troughed - Citywire

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Top performing Alt Ucits manager: European earnings have troughed

Top performing Alt Ucits manager: European earnings have troughed

JPM Europe Equity Plus  manager Nicholas Horne says a widespread European recovery is underway and is finding attractive long positions in both core and peripheral Europe.

Horne believes corporate earnings have troughed, and that despite a 120% rise in European stock markets since the March 2009 low, valuations still look historically attractive.

He told Citywire Global: 'Cyclically adjusted PE levels for European stocks are still only at 13 times, and Europe has dividend support at 4% as well as very strong corporate balance sheets.'

Horne is also encouraged by the best PMI statistics for both the core and periphery for two years which he says indicates that earnings have troughed and there will be plenty of positive earnings surprises to come.

Austerity front-loaded

'A lot of the fiscal austerity was front loaded and we are now seeing signs of it easing, against a backdrop of accomodative monetary policy and easing labour costs.'

Horne, who manages the fund alongside Michael Barakos, uses JP Morgan's 30-strong behavioural finance team to find opportunities on both the long and short side and in the three years to the end of June, the fund has more than quadrupled its benchmark.

The team screen stocks for three main criteria: valuations, quality and operational or price momentum. And, for the last three years Horne said outperformance has come from an ever wider range of sectors and countries.

'We continue to find attractive and unattractive ideas across all sectors and over the past 12 months have outperformed in 80% of sectors and almost all countries.'

A key area has been capital goods, where the managers have been overweight German autos equipment supplier Duerr, versus a short on fellow German capital goods firm SGL Carbon.

'Duerr has strong earnings momentum and net cash and has also benefited from a strong end market. SGL Carbon looked expensive on 28 times forward earnings and is suffering from weak end markets. There is a tendency after one profit warning for more to follow.'

The fund remains underweight materials firms after the prolonged sell off in commodity prices. 

The most significant shorts here have been against diversified miner BHP Billiton and iron ore producer African Minerals, which has borne the brunt of a 20% drop in iron ore prices.

The other side of the trade has seen Horne benefit from long positions in paper and packaging firms such as Italian group Mondi.

'It is a low cost producer which is driving ever greater efficiencies,' he said.

UK interest

Horne admits that he 'got it wrong' on UK online grocer Ocado, missing out on the improved sentiment generated for the stock after it announced its business tie up with UK supermarket group Morrisons.

Other key positive long bets have been  a basket of UK house builders, Persimmon, Barratts and Bellway, with Horne saying the UK's 'help to buy' scheme has helped to boost profits in the sector.

Budget airlines have also been a successful long play, with the managers holding both EasyJet and Ryan Air. Shorts in the transportation area have come from freight operators.

Being overweight Scandinavian banks versus a short on peripheral banks has also helped, while a long on oil services group versus a short on oil major Total, has also proved fruitful.

Short on Nestlé

Another key area has been food and beverage, where a long on Italian food producer Danone has worked well with a short on consumer products giant Nestlé, which is suffering from reduced emerging market demand in recent months.

'Nestle is a great company, but it was priced to perfection for perpetuity. It has been priced to deliver 6% organic growth forever but the company is now seeing some downgrades.'

JPM Europe Equity Plus A Dis GBP has returned 64.49% in the three years to the end of June 2013. This compares to a 15.54% rise by its Citywire benchmark, the STOXX Europe 50 CR EUR over the same period.

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Nicholas Horne
Nicholas Horne
67/82 di Azionario Long/Short (Performance su un periodo di 3 anni) Ritorno medio: -3,62%
Michael Barakos
Michael Barakos
43/193 di Europa (Performance su un periodo di 3 anni) Ritorno medio: 7,52%