Europe's economic environment remains challenging and its problems continue to dominate news headlines. Sluggish economic growth and concerns over Greece reaching agreement with the rest of Europe over terms of its bailout has revived investor uncertainty. Despite the continent's economic malaise, there are grounds for optimism - a falling oil price and the weakness of the euro could be good news for many European firms.
In a weak economic environment, investors have tended to favour higher-quality, defensive businesses; many with a global reach. This type of company performed better in 2014 than those in the more economically-sensitive sectors.
The mantra of Barry Norris, manager of the FP Argonaut European Alpha Fund, has been: invest in European companies rather than the European economy. As such, he has tended to avoid higher-quality businesses and he has favoured more economically-sensitive firms with a domestic focus. He views the latter as more attractively-valued compared with internationally-exposed peers. Even with this bias, the manager outperformed the broader European stock market and his peer group in 2014 - our analysis suggests Barry Norris' stock picking skill has helped drive this outperformance.
The manager's contrarian style leads him to invest in unloved areas of the market. Towards the end of 2013, Barry Norris invested in a number of Greek banks, believing there could be a recovery in corporate profitability on the horizon. The fund profited from these positions, which were eventually sold in late 2014.
Elsewhere, the manager continues to hold a number of banks located in southern European countries, including Intesa Sanpaolo based in Italy. He is encouraged by a number of domestic banks that are working to reduce debt levels and where lending is beginning to pick up.
Ryanair is another current favoured holding. The airline currently represents 12% of the European aviation industry, and has the potential to increase market share. According to the manager, the company has a strong balance sheet and is one of the lowest cost producers in the industry. It is also likely to be a beneficiary of lower oil prices.
Our view on this fund
Barry Norris is a truly active manager who takes a different approach to many of his peers. His flexible style has earned him a strong track record; since launch in May 2005, the fund has returned 187.3% against 119.4% for the benchmark and 109.7% for the average fund in the sector, though please remember this serves as no guide to future performance.
|Annual percentage growth|
| Feb 10 -
| Feb 11 -
| Feb 12 -
| Feb 13 -
| Feb 14 -
|FP Argonaut European Alpha||16.4%||-6.0%||15.7%||20.1%||5.2%|
|MSCI Europe ex UK||14.6%||-11.7%||23.5%||9.0%||8.5%|
|IA Europe ex UK||14.7%||-11.4%||23.3%||12.1%||5.1%|
Past performance is not a guide to future returns. Source: Lipper IM* to 02/02/2015
Our research indicates the manager has added value over the long term through a combination of good stock selection and by positioning the fund towards the right sectors and geographical areas. The fund is concentrated which allows each holding to have a significant impact on returns although this is a higher risk approach. Our work also suggests Barry Norris is prepared to take strong views and actively change the positioning of the fund based on where he views the best opportunities. This means the portfolio could behave quite differently to others in the sector, though it is an approach that has proven favourable over the long term.
We continue to view the fund as an excellent European candidate for the Wealth 150 list of our favourite funds across the major sectors.
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