The recently launched Britannic Argonaut European Alpha fund, run by top performing fund manager Barry Norris* is designed to exploit untapped opportunities and anomalies within European equity markets
Differentiation
Europe is a large and diverse region with many markets at different stages of economic development. Investors can choose from around 100 authorised unit trust funds operating within the IMA Europe ex UK sector, most with little to differentiate between them.
Traditionally there have only really been two choices open to investors. They can buy a fund from a large mainstream provider with a respected brand name in the industry, but very often they're let down by the returns on those portfolios.
Alternatively, investors can look to boutiques which may have better performance track records but lack the organisational support or market profile of the big players.
At Britannic we believe what we're doing is both exciting and innovative. We are in the process of setting up a boutique operation that will be attached to our established investment house.
This collaboration in conjunction with European fund managers Barry Norris and Oliver Russ immediately differentiates us from our peers. The operation will be London-based, entirely autonomous and follow its own investment process and style.
Its proposition is high alpha performance, supported by the capabilities, skills and confidence of the Britannic brand. Our first boutique-style venture will be specifically focused on European equities. The recently launched Britannic Argonaut European Alpha fund will be the first fund to be managed under this new arrangement.
Why Europe?
There are three main reasons for investing in Europe at present. The first is valuation, as Europe remains the cheapest of the major markets. Secondly, Norris believes we are closer to the start than the end of the boom in oil and oil-related stocks. And lastly, there are a number of fast growing countries in the region that offer plenty of attractive investment opportunities.
Some investors and commentators have been reluctant to invest in Europe, saying that now is not the right time. As a whole, European economic growth has been uninspiring and has lagged behind the other major regions, an argument that could have been made at any point over the last three years.
However, the fact remains that during the last three years Europe has outperformed every other major market. Norris believes Europe still remains relatively cheap and there are some great opportunities to make money for investors. To reinforce his point, for all China's growth, the Shanghai market is down 13% year to date, while France is up 7% and indeed all other major European markets are in positive territory too.
The Fund
The Britannic Argonaut European Alpha fund is a fund of 'best ideas' with a concentrated portfolio of 30 to 50 holdings, which Norris believes are the best stock opportunities to be found across Europe.
The flexibility of the fund is a key proposition, as this allows him to select stocks regardless of sector, country or market capitalisation. This in turn means he can follow his convictions when constructing the portfolio.
The investment remit is also sufficiently wide to allow investment in stocks from countries on the periphery of Europe or who derive a significant part of their business in Europe but are not located or listed there.
Stocks are selected from the fund's benchmark, the Europe MSCI ex UK, although the benchmark does not dictate the composition of the portfolio. This universe of around 800 stocks is narrowed down to companies we're interested in for stock specific reasons.
Norris uses his own quant model to identify valuation anomalies in the overall universe as well as external research, but for every investment made he carries out his own research and valuation modelling.
The objective of the fund is to significantly outperform the peer group over all timeframes, which means attaining a top quartile position, with a tracking error of between 5% and 8%.
Portfolio Construction
The portfolio has been constructed with significant overweight positions in the energy sector, where we firmly believe we're closer to the start rather than the end in the boom in oil and oil-related stocks.
It includes a number of stocks that play on the economic growth theme on the geographic periphery of the region, such as Hungary (5%) and Greece (8%), while there is a significantly positive position in Norway (over 15%) based on excellent economic growth figures.
The dividend yield of many European companies is currently very attractive and this is an indicator Norris is focusing on. As a result the fund holds a number of stocks that display this characteristic. Overall, the portfolio is composed of companies that are cheaper than the average in the marketplace and also offer faster growth rates.
Barry Norris
The fund will be managed by Barry Norris, who has established an excellent reputation for managing European equities during his eight years in the industry, together with Oliver Russ - both formerly of Neptune Investment Managers.
There Norris launched and managed the highly successful Neptune European Special Opportunities fund.
The Britannic Argonaut European Alpha fund will be managed along very similar lines. A key difference is that our fund will initially have a heavier bias towards large caps because Norris believes these currently offer more opportunities relative to mid or small caps.
The fund already has around £40m worth of assets, as intermediaries who like the process and style Norris adopted previously look to invest with him again.
