- 2016 was a challenging year for the fund
- Barry Norris continues to seek companies he believes will deliver earnings improvement
- We remain impressed with the manager’s long-term track record
Our research shows Barry Norris is prepared to be flexible and actively change the positioning of the FP Argonaut European Alpha Fund based on where he views the best opportunities. This means the portfolio can behave quite differently to its peers and the broader European market, as seen over the past year.
It is an approach that has proven favourable over the longer term. Under Barry Norris’ stewardship since May 2005, the fund has grown 215.1%* compared with 163.3% for the FTSE World Europe ex UK Index, although this should not be seen as a guide to future returns. The manager’s performance is a result of a combination of good stock selection and positioning the fund towards better-performing sectors and geographical areas, according to our analysis. The fund is a relatively concentrated portfolio of 49 stocks; we like this approach as each investment can have a meaningful impact on performance, however this is a higher-risk strategy.
We maintain our long-term conviction in this fund, which features on the Wealth 150 list of our favourite funds across the major sectors.
|Annual Percentage Growth|
| Dec 11 -
| Dec 12 -
| Dec 13 -
| Dec 14 -
| Dec 15 -
|FP Argonaut European Alpha||11.0||30.7||3.0||15.0||-2.0|
|FTSE World Europe ex UK||17.8||25.2||0.2||5.3||19.7|
Past performance is not a guide to the future. Source: *Lipper IM to 30/12/2016
Market and fund review
2016 was a year of surprises. From the UK’s vote to leave the European Union to Donald Trump’s victory as the next US President, the year ended in a way many of us did not predict. Wider economic and political events altered the investment landscape and even some of the most seasoned investors were caught off guard.
Barry Norris and his FP Argonaut European Alpha Fund had a particularly tough year; while the broader European stock market grew 19.7%, the fund fell 2%. This is over a short time frame, however, and should not be seen as a guide to future performance.
Why did the fund perform this way?
The main aspect of the managers’ investment process is to look for earnings surprises. He aims to identify and invest in companies that he feels are likely to earn significantly more profit than other investors forecast. These companies’ share prices could rise once their improved earnings and profitability have been recognised by the wider market.
A world of significant and unprecedented economic events proved a headwind to the manager’s investment strategy in 2016. In such an environment, he feels investors tend to overlook earnings surprises; instead, broader economic factors drive sentiment and market performance.
The fund’s most prominent period of underperformance followed the UK’s vote to leave the EU in June. Barry Norris felt the outcome posed significant risks to the UK and European economies. He therefore tilted the fund towards more defensive areas of the market, such as consumer goods and healthcare, and reduced exposure to domestically-focused, economically-sensitive industries.
The latter type of company, including many in the financials sector, went on to outperform and the fund was not positioned to benefit. Euro zone banks performed particularly well, yet the manager believes their share prices have been driven by a change in sentiment rather than any significant improvement in the banks’ profitability. He instead focuses on areas where he feels earnings and profitability can be sustained over longer periods.
The fund’s lack of exposure to the stronger-performing basic materials sector also held back returns. Barry Norris has, however, recently added new investments in this area, including steel company ArcelorMittal. In his view, rising commodity prices and the closure of other steel and mining manufacturers could lead to an improvement in the earnings of more efficient competitors in the sector.
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