Supportive backdrop for Pan-European stock-pickers, according to New Star's Daniel White


The New Star Pan-European Equity Fund is a stock-picking fund in its purest form. It was launched in December 2005 and has produced top quartile performance over the period to the end of March 2007*. The fund can buy equities in any European country or sector that offers attractive investment opportunities although it typically maintains about a third of its portfolio in the UK.


Since launch, the fund has risen 31.2% compared to a 25.4% gain in the FTSE World Europe Total Return Index, and it is in the top 10% of its sector over the first quarter of 2007*. Daniel White, the lead manager, explains, below, how he has generated performance, picks his favoured holdings and discusses the fund's prospects over the coming months.


While the market correction in late February dominated commentary about the first quarter, European equity markets were quick to regain their upward momentum. The correction appeared to be financially rather than economically-driven, with the backdrop for equities remaining supportive. Private equity takeover interest continued to lift share prices, unemployment and interest rates were low, valuations were cheap, and economic indicators, particularly in Germany, were encouraging.

The fund's focus on well-managed, cash-generative companies, many of which operate in niche markets, provides a defensive bias to the portfolio and offered resilience during the market wobble. The investment process is kept simple, with the fund looking to hold stocks that will limit the risk of investors losing money regardless of the prevailing conditions. This means the portfolio construction does not depend on whether general market sentiment is with the bulls or the bears. Currently, attractive stock-picking opportunities continue to be found across Europe.


Over the first quarter, the fund was in the top 10% of its sector with returns from the Europe excluding the UK portion of the portfolio particularly pleasing. The fund also enjoyed significant inflows. These were put to work both in existing holdings and in the purchase of new stocks. Positions were built up in Smurfit Kappa, an Irish paperboard manufacturer benefiting from a consolidating market, Ponsse, a specialist Finnish manufacturer of forestry machinery, and Connecta, a Swedish information technology services business with strong growth prospects and a generous dividend policy.


While there has been talk of a slowdown in global economic growth, the outlook for the Pan-European region is relatively positive. Domestic demand remains supportive and should strengthen as employment conditions continue to improve. Global economic growth, while slowing, remains at a pace that supports European exporters and the region's favourable monetary conditions are likely to continue to attract investors. 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. 


Favoured holdings

Carrefour, the French retailer, is one of the fund's largest holdings. It posted solid gains in the first quarter, benefiting from private equity interest. This seems to confirm the view that food retailers across Europe are fundamentally cheap. Even after its recent share price increases, Carrefour continues to trade on an attractive free cashflow yield, supporting the case for remaining invested rather than taking profits.


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 well above the share price at the end of March.


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.

*Standard & Poor's, performance data in euros, NAV to NAV, net of fees, gross income reinvested to 31/03/07.


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For further information, please contact Trina Arthur at New Star International on +44 (0)20 7225 9574.


New Star important facts:


NOTES TO EDITORS:

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 fund mentioned in this document should be viewed as an investment suitable only for investors who can fully evaluate and bear the risks involved. Full details of the fund can be found in the prospectus or offering document, in the case of Hong Kong. Any investment decision must be made solely on the basis of the information contained in the prospectus/offering document, which is available on request from New Star. The simplified prospectus and most recent annual and interim reports are also available upon request.


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The fund mentioned in this document is 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 is a sub-fund, 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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