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 in the period to the end of 2006*. The fund can buy equities in any European country or sector that offers attractive investment opportunities although typically maintains about a third of its portfolio in the UK.
Since launch it has risen 24.7% compared to a 21.9% gain in its benchmark, the FTSE World Europe Total Return Index**. Daniel White is the fund's lead manager and, below, he explains why he is positive about the outlook for the region and picks his top stocks of the past year.
European equities had a further strong year in 2006, responding positively to higher corporate earnings, a raft of cross-border consolidation and improved economic performance. While the fund's focus on well-managed, cash-generative companies, many of which operate in niche markets, means the broader economic environment is not a central concern, the healthy economic backdrop is likely to continue and provide further support. Even with rising interest rates in Continental Europe, credit is still relatively cheap and corporate activity is likely to remain a defining feature of the equity markets. Shareholder activism is also becoming increasingly apparent and this should encourage management teams to become more competitive and unlock value for shareholders.
In the UK, there are strong reasons to remain bullish on equities, with the UK economic environment remaining benign. The housing market remains strong and employment levels are higher than they were a year ago. Inflation is being kept low as technology and a pool of labour from developing markets drive down the price of goods and restrain wage bargaining. The UK equity market should continue to benefit from the process of de-equitisation as foreign company takeovers, share buy backs and private equity de-listings cause the volume of listed shares to shrink. This should provide further structural support for equities through 2007.
In such circumstances, there are grounds to be relatively positive about economic prospects. Companies owned by the New Star Pan-European Equity Fund look well positioned to deliver if the current conditions are sustained while the fund's focus on robust cash-generative companies should offer resilience in the event of any economic growth slowdown.
Favoured holdings
Syngenta, the Swiss fertiliser company, demonstrates the value of picking stocks based on pricing assets rather than buying in line with market sentiment. Syngenta had fallen in price from almost CHF190 in February 2006 to lows of CHF146 in June†. While unloved by the market, it was identified as a fundamentally good business that was trading cheaply and stood to benefit from its strong market position and conservative customer base. The fund bought Syngenta in June for about CHF155 and participated in strong growth as the stock reached a year's high of CHF234 in December, up 45% for 2006†.
Beneteau, the French sailing yacht manufacturer, was another valuation-led addition. It was bought in February 2006 because it had a high free cash-flow yield, sound finances and good management. At the time of purchase, Beneteau had recently revised its profit forecasts downwards, leaving it out of favour with the wider market. Added to the portfolio at about €60, Beneteau held up well during the market sell-off in May and ended the year at about €83, up about 48% for the year†. Both Beneteau and Syngenta look well placed for further growth.
* Standard & Poor's, performance data in euros, net of fees, gross income reinvested to 29/12/06.
** Lipper, performance data in euros.
†Thomson Datastream 29.12.2005 to 29.12.2006
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For further information, please contact Trina Arthur at New Star International on +44 (0)20 7225 9574.
NOTES TO EDITORS
New Star important facts:
- 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 over 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
The contents contained within this release are directed at investment advisers only and should not be relied upon by individual investors.
Investments in New Star funds are suitable only for investors who can fully evaluate and bear the risks involved. This document does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such offer or solicitation. Distribution of this document in certain jurisdictions may be restricted and accordingly persons into whose possession this document comes are required to inform themselves about and to observe such restrictions.
Issued by New Star Asset Management (Bermuda) Limited.
