European Equity Funds Buy Energy Stocks

How have the professional investors been reacting to the challenging European stock markets? Morningstar's Muna Abu-Habsa reveals their purchases

Muna Abu-Habsa 17 May, 2018 | 8:44AM

 

Muna Abu-Habsa: European equity investors have had a lot thrown at them at the start of 2018, with the broad market index down 1% so far this year. We saw a surge in stock market volatility in February, which was worsened by inflation and interest rate concerns, and followed by global trade uncertainties in March. The highlight on the political front was the Italian election, but that was inconclusive and it didn’t actually have much of an impact on the market.

At a sector level, bond-proxy sectors led the declines on the back of rising US rates and bond yields, so staples, and particularly tobacco has been the worst performing sector, pharma, telecoms and even financials are all down.

Topping the charts are names within energy, utilities and technology, but also within consumer discretionary autos have done really well.

So what are European equity managers doing? Well, they have on average been reducing their exposure to overcrowded, growth-oriented stocks and have been looking to take advantage of mispriced stocks with improving fundamentals within energy, utilities and telecoms.

In fact, the average Europe large-cap fund has a higher weighting in those sectors now compared to 18 months ago. At the extreme end of that positioning is Oliver Kelton, manager of Bronze-rated Odey European Focus, where half of his portfolio is invested in telecoms and utilities, and close to 30% is in cash and liquid assets.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Odey European Focus I EUR Acc105.87 EUR-0.27

About Author

Muna Abu-Habsa  is a senior investment research analyst at Morningstar