Since its foundation in 2000, New Star has created an environment in which talented fund managers are given the freedom to follow their convictions when seeking the best returns for investors. No top-down strategies are imposed and fund managers are free to deviate from their benchmarks or index weightings when picking stocks. Below, three New Star fund managers comment about prospects for their respective investment regions and sectors.
Daniel White, fund manager of the New Star Pan-European Equity Fund
The current economic environment is providing support for European equities. Private equity interest continues to lift share prices, valuations remain relatively cheap and economic indicators are encouraging. Unemployment across the eurozone recently fell to a record low. The fall was led by declines in Germany and France but unemployment figures also improved in Ireland, Belgium and the Netherlands. Interest rates, while rising, remain relatively low and the region’s favourable monetary conditions are likely to continue to attract investors.
Domestic demand remains supportive and is likely to strengthen as employment conditions continue to improve and global economic growth, while slowing, remains at a pace that supports European exporters. Companies owned by the New Star Pan-European Equity Fund therefore look well positioned to deliver if the backdrop remains supportive while the fund’s focus on robust cash-generative companies should offer resilience if global economic conditions take a turn for the worse.
Stock ideas
Guala Closures is an Italian company that is among the world leaders in the production of safety closures for drinks and food manufacturers. Such closures are increasingly in demand as companies export to emerging markets, where there is a higher risk of fraud. Guala, with its niche market, cheap valuation and high return on capital employed, is typical of stocks favoured by the New Star Pan-European Equity Fund.
Kinepolis is a Belgian cinema multiplex operator. Kinepolis owns the assets associated with each multiplex, such as the car parks and cinema buildings, and is now looking to redevelop these properties. The free cashflow yield of the business is already high but once the redevelopment potential of the cinema buildings has been realised the actual value could be significantly more than the market value at the beginning of May.
Guy de Blonay, fund manager of the New Star Global Financials Fund
The financial services industry is the largest sector in world stockmarkets, making up more than a quarter of the MSCI World Index. It contains a wide diversity of companies, including those that benefit in rising markets, such as asset managers and banks, and those that do well in falling markets, such as hedge funds and derivatives specialists.
In the current conditions, Continental Europe is providing particularly attractive stock-picking opportunities. Valuations of European financial companies are cheap compared to those in the US and Japan – an imbalance that is likely to be corrected in time as takeover activity and high levels of liquidity support positive re-ratings and rises in share prices. National barriers are being broken down, leading to consolidation and the creation of mega-European banks, such as UniCredito Italiano.
Continental European investment banks and fund management groups have become global organisations, providing exposure to fast-growing economies around the world. Examples include Société Générale, which has the option to move into the Russian market, where loans and deposits are growing strongly, while Germany’s Deutsche Bank has enjoyed strong sales and trading growth in China and India.
Stock ideas
UniCredito Italiano stands to benefit from both consolidation within the Italian banking market and from its growing business in Central and Eastern Europe. UniCredito’s year-end results exceeded analyst forecasts and its earnings per share targets are said to be beatable. The banking giant has benefited from an improving macro-environment, disruption within its sector caused by mergers and acquisitions and rising demand for consumer loans. Cost cutting in Germany has also helped its growing business outside Italy.
Greg Kerr, fund manager of the New Star US Opportunities Fund
Global stockmarkets were able to shake off a bout of volatility earlier in the year with relative ease and have since posted steady gains. Worries, however, remain and some commentators are questioning whether the old adage “sell in May and go away” could hold true, taking equity markets into negative territory.
Bull markets, particularly those with some years behind them, naturally bring concerns over when the good times will end. Nonetheless, the case for long-term investment in equities remains sound. Currently, the most striking anomaly from which investors can potentially benefit is how cheap large cap stocks are relative to small caps. This is true in virtually all markets, with Japan the only notable exception. In the US, the additional attraction of large cap stocks is that they tend to be more export-orientated and, as such, should benefit from a weaker US dollar.
The weak dollar also means that companies in the US generally look attractively valued compared to those in European markets. In addition, US equity markets benefit from greater diversity compared to those in Europe and constituent companies are generally of a better quality in the US. The New Star US Opportunities Fund’s approach of holding more large than small cap, good quality, attractively-valued companies should therefore help drive performance through the summer whether or not global economic growth slows.
Stock ideas
Seagate Technology is the world’s premier manufacturer of disk drives and enjoys a competitive advantage due to its strategy of vertical integration rather than relying solely on outside suppliers. The disk drive industry has consolidated and the stock was trading in early May at a price that appeared to be more than 20% below its fair value.
IndyMac Bancorp is a hybrid thrift/mortgage bank that has suffered falls in its share price due to worries regarding sub-prime mortgages. The bank has a good track record and, although going through a difficult period, its shares appear attractive, with the potential to trade about 25% higher.
– Ends –
NOTES TO EDITORS:
• New Star, one of the UK’s fastest growing fund management companies, was founded in June 2000 by John Duffield, previously the founder of Jupiter Asset Management, which he built into one of the most successful retail investment businesses in the UK.
• New Star is expanding its international business in response to the growing demand from investors in Continental Europe. The aim is to become a leading mutual fund provider in the next few years, offering international investors the investment expertise of one of the fastest growing and most successful UK fund management groups.
• New Star’s international strategy is to develop key partnerships in local markets.
• New Star International’s website can be found at www.newstaram.com.
Past performance is not necessarily a guide to future performance. The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice.
IMPORTANT INFORMATION
Past performance is not necessarily a guide to future performance. The value of investments and any income from them may fall as well as rise and investors may not get back the amount originally invested. The value of investments may also increase or decrease as a result of changes in exchange rates between currencies. Investments involve certain risks, as described in the relevant prospectus. Any opinions expressed in this document may vary without prior notice and do not constitute investment advice.
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The funds mentioned in this document are not registered for distribution except as noted below. The New Star Global Investment Funds PLC (the Fund) is regulated by the Irish Financial Services Regulatory Authority (Irish Financial Regulator).
The New Star Global Investment Funds PLC (the Fund), of which the New Star
Pan-European Equity Fund and the New Star US Opportunities Fund are sub-funds, should be viewed as an investment suitable only for investors who can fully evaluate and bear the risks involved.
The manager of the Fund, New Star Investment Funds (Ireland) Limited, is regulated by the Irish Financial Regulator. The investment manager, New Star Asset Management Limited, is regulated by the Financial Services Authority of the United Kingdom (the FSA). The custodian is State Street Custodial Services (Ireland) Limited.
The Carnegie Fund Services SA, 20 rue du Conseil Général, 1205 Genève, Suisse (Postal address: Casa Postale 5656, 1211 Genève 11), Tel: +41 22 7051177, Fax: +41 22 7051179 has been appointed as the representative of the Fund in Switzerland. For Hong Kong: The Fund has been authorised by the Securities and Futures Commission (the SFC). Authorisation by the SFC does not in anyway imply any official approval or recommendation by the SFC. In Singapore the sub-funds are recognised as Restricted Collective Investment Schemes by the Monetary Authority of Singapore.
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The New Star OEIC, (UK-domiciled) of which the New Star Global Financials Fund is a sub-fund of, the ACD, New Star Investment Funds Limited, and the Investment Adviser, New Star Asset Management Limited, are authorised and regulated in the UK by the FSA.
The New Star Global Financials Fund has been registered for distribution in France with the Autorité des Marchés Financiers and in Spain with the Comisión Nacional del Mercado de Valores under number 492. Issued by: New Star Investment Funds Limited.
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