The Newsmith European Fund will be managed by Jean Maigrot, who joined Newsmith in 2007 and will focus on large cap European companies.
Matthew Wright, head of UK and European distribution at Newsmith, the decision to create a UCITS version of the fund, was driven by demand from investors and the growing popularity of the UCITS structure.
“We already have $35m (£22m)in seed capital committed to the Dublin version of the fund ahead of launch in the middle of the month.
In order to manage the volatility of the fund, Maigrot says he uses both his gross leverage and net exposure to the markets.
According to Maigrot, the fund will follow the same strategy as the existing Cayman Island-domiciled UCIS version, that he has run since inception in 2007 and which has returned 29% since then with an annualised volatility of 4.3%. As a point of comparison, Newsmith points out that, over the same period the Eurostoxx 50 is down around 26%.
“Very often, you find that the acceptable norm in the industry is an enormous amount of leverage in order to generate returns. I approach it completely differently; you don’t need excess leverage to generate absolute positive returns. And, throughout the life of the fund I have never been more than 140% exposed on the gross side. I would much rather, in periods of volatility, reduce my gross with a view to increasing it when the market is less volatile,” he said.
Maigrot sees opportunities on both the short and the long side of the fund, especially because many European stocks are currently trading at a significant discount to US equities. He says that there is also likely to be a resurgence of corporate and restructuring activity that should act as an investment catalyst within the region. But, that said, he is not particularly positive on the outlook for European growth as a whole.
Market in transition
“The market is in transition at the moment, you can see earnings are peaking. So the question is, are we going to see a prolonged correction or a short one. I am of the view that we are in for quite a lengthy correction and that is the reason why I have changed my stance on the financials from overweight to net short,” he said.
Adding: “I am still mindful of the fact that where we are right now, there will be bouts of central bank liquidity injected into the markets, as we saw in Japan last week. But, the ECB has reached the end of the road in terms of the amount of ‘talking the talk’ that Draghi can do, he now needs to act. And, what we have seen so far is that it is too little too late.”
The other point to note in terms of the larger cap names within the European market is that most of them derive more than 55% of their earnings from outside of Europe.
“Until now these companies have benefited more from a global recovery, than a European recovery and they still think the world out there is still growing. But, the jury is out as to the US growth outlook – the end of QE will undoubtedly have an impact on growth. And, outside of the US, China is slowing.
But, as he points out, such a scenario presents him with opportunities.
“I do not use my short positions just as a hedge for long positions, I employ my shorts to make a profit,” he added.
The UCITS fund is domiciled in Dublin and will have daily dealing in four share classes, dollar, sterling, yen and euro. And, will have a management fee of 1.25% and a 20% performance fee. The group says there is also a founder share class that has a 1% management fee and a 15% performance fee.
