One group with several funds among the best performers in this admittedly short window is Scottish Widows. To pull out one example, Alister Hibbert’s
//www.morningstar.co.uk/UK/snapshot/snapshot.aspx?lang=en-GB&id=F0GBR04S2O">Scottish Widows European Select Growth
lost just 3.77% from 9 August through 16 August, and 7.82% during the longer downturn that stretched from 18 June through 16 August. That contrasts sharply with sector median losses of 6.17% and 10.11%, respectively.The fund has had a strong run since current manager Alister Hibbert came on board, but—despite its recent strength, it’s by no means a defensive play. It fared well primarily because it had a large underweight in financial services—easily the hardest hit sector in the period. However, Hibbert has tilted it heavily towards mid- and small-caps and industrial issues, devoting a full 35% of the fund to industrials as of 31 July 2007. Both smaller-cap shares and industrials tend to be more economically sensitive and more volatile than market norms. Hibbert has made those risks pay, and his tenure here thus far has been strong. The fact remains, however, that his record at this offering is brief and has been achieved during a period that has been exceedingly favourable to his style. We hope he can continue to deliver, but this is a riskier investment than it might seem from its recent strength.
A second offering that also fared well in the sell-off presents a far different face. Templeton Europe has been run by Andrew MacKirdy since Ken Cox stepped down for health reasons in November 2005. Although MacKirdy’s tenure here is therefore short, the fund is backed by a large team of analysts that use the disciplined, value-based investment style that is Templeton’s hallmark. It has fared poorly over the past three years, as the fund has remained underweight in the comparatively richly valued industrials and energy sectors, and overweight in large caps. However, it is less volatile than its typical peer, and if we are heading into a period of extended uncertainty, its portfolio could fare much better in the future than it has in the recent bull market.
At the other end of the spectrum, Fidelity European’s dreadful 2007 continued during the sell-off with a 7.4% decline from 9 August through 16 August, and an 11.4% loss from 18 June through August 16. The problem: Tim McCarron’s big bet on financial services. With 36% of equities in the sector as of 30 June, the fund was in the eye of the subprime storm. This is by no means enough to suggest McCarron has lost his way—he has shown great talent in the past and this is a very short period. But the fund’s fall does point to the risk of having so many eggs in one basket—particularly for UK investors, where our local market is already so heavily exposed in financials.
A version of this article previously appeared in Investment Adviser, Financial Times Ltd.
