Global equities fund managers defy Europe fears

Two-thirds of global equities fund managers are overweight Europe ex UK, despite fears of recession, unemployment, government defaults and a potential eurozone break-up, according to a sector trends report from S&P Capital IQ.

Most portfolios held European-domiciled large-caps with notable emerging markets exposure rather than domestically exposed stocks – such as Nestlé and Unilever. This continues a trend S&P Capital IQ observed in 2011.

“The rationale remained that in developed markets better corporate governance prevailed, large-caps were still cheap relative to small-caps and that a holding with multinational emerging markets exposure is preferable to direct investment in a specific country where companies might be looking overvalued,” says S&P Capital IQ fund analyst Susan Sworn.

An extreme example of this is the S&P Capital IQ Platinum graded Rouvier Valeurs, which had 84% of its concentrated portfolio in Continental Europe (71% in France).

While this to some degree reflected the natural knowledge bias of the team, the holdings principally comprised globally diverse companies that just happened to be domiciled in France, offering good growth but trading at a discount to intrinsic value.

Few funds were overweight the US, unsurprising given its weight in the indices (48% of the MSCI ACWI and 60% of the MSCI World), the report noted.

Only seven funds had more than 55% in the US, but the sector averaged 40% exposure, reflecting the fact that some of the world’s largest IT names are domiciled in the US.

The performance of the IT sector helped the S&P 500 to achieve a small positive return over the 12 months to the end of June 2012, a feat few countries were able to emulate.

The six funds with a US weighting below 20% tended to be more value-oriented in their approach and both groups viewed the sector and the US market as overvalued. S&P Capital IQ Silver graded BL Equities Dividend, for example, with its defined relative value approach, had just 6% in the US.

The paper is available at

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