European equities: still a good buy
The SFM Group will launch the World Investment Opportunities Funds (WIOF) in Cyprus today, a Luxembourg fund of funds with some EUR 100 mln under management.
The fund, which specialises in Central and Eastern Europe, is the very first Luxembourg-domiciled investment fund (SICAV) investing in the Cyprus equity market, and includes as one of its sub-funds Laiki-EDAK Asset Management’s Greece-Cyprus Opportunities Fund, managed by Marios Demetriades.
Portfolio management representatives from WIOF’s 24 sub-funds will speak on Thursday about the funds that they are managing inside of the new WIOF multi-manager investment fund range.
In total, these professionals manage billions of euros in assets.
The programme will include speeches on equities, emerging markets, asset allocation, as well as the Cypriot market.
European equities: still a good buy
Day traders might have had a rocky time of it in the past few weeks but for the longer-term investor, European equities are still a good buy, according to Dr Orun Palit, head of Equity at the AIG Global Investment, a Swiss-based 100% subsidiary of AIG Private Bank.
Palit, who manages around Swfr 1.5 bln in European equities, also manages the European Equity sub-fund which is included in SFM Group’s WIOF.
Despite differences in macroeconomic growth rates, European equities have outperformed those of the US in the past three years, rising by around 100% from March 2003 to April 2006, compared with 46% in the US.
Palit says that this is because European companies “have done their homework: they have restructured rigorously , they have outsourced costs to Asia and Central and Eastern Europe”.
Moreover, they have done this to a greater extent than US companies.
“Earnings growth was higher and will still be higher than in the US,” he said.
Mergers and acquisitions and initial public offerings (IPOs) are also providing what Palit calls a “tailwind”, while private equity investors are also providing demand, having raised EUR 1 trillion in 2005 alone.
Valuations are also attractive. Palit notes that the price/earnings ratio for 2006/07 for German equities is 12-13 after the recent correction, which is below its historical trend.
“We are absolutely not in a bubble,” he said.
In Germany, leading indicators suggest that sentiment is improving, both on the retail side, with an uptick in retail spending, and on the investor side, with investment in real estate.
Finally, the fortchoming World Cup, combined with the knowledge that VAT will go up by 3 percentage points in 2007, is expected to give a boost to retail spending.
However, Palit notes that growth is not just coming from Germany.
AIG Global Investment Group’s approach to the European Equity fund is 70% blue-chip, 30% small and mid-cap. While the 30% is invested in Swiss and German companies which AIG Global Investment Group can follow very closely from its Swiss base, the blue-chips are all over Europe, both inside and outside the EU and eurozone.
Palit said that they are neither growth nor value investors and that investment decisions are made on an “80% bottom up” approach.
This is especially useful for small and mid-cap stocks, where portfolio management includes regular meetings with the top executives and visits to facilities.
This investment style has put the AIG European Equity fund in the top five in its peer group in the past year.
Fiona Mullen
