One of Europe's best investors doesn't think about Trump

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One of this year’s best-performing European equity fund managers says trying to predict geopolitics is a waste of time for an investor.

Tuesday 04, December 2018

(Bloomberg)--“We don’t think about macroeconomics, we don’t think about interest rates, we don’t think about Trump, we don’t think about politics or Brexit,” said Kevin Murphy, who helps run the $1.5 billion Schroder Income Maximiser Fund, which has beaten 98 per cent of peers in 2018 by focusing on UK value shares. “You’re much better off not trying to predict unpredictable events and focus on company fundamentals.”

Geopolitics along with concerns about rising US interest rates have pummeled European stocks in 2018, with the Stoxx Europe 600 Index poised for its worst year since 2011. Just one strategist surveyed by Bloomberg in January had forecast the European market’s 2018 decline, made worse by Italian and UK political melodramas.

It’s all about careful stock-picking, with a focus on valuation, profit and balance sheet risks, Murphy said in a phone interview. The fund’s team selects UK companies that have already priced in negative news, so when the market encounters a downturn like the one seen in October and November, such stocks tend to outperform, according to Schroders.

Schroder Income Maximiser Fund has returned 2.9 per cent this year and 11 per cent over the past three years. In contrast, the FTSE 100 Index is down 7.3 per cent in 2018 and the MSCI UK Value Index has dropped 11 per cent. The fund’s top holdings as of Oct. 31 included Pearson Plc, BP Plc, GlaxoSmithKline Plc and HSBC Holdings Plc.

As the March deadline for the UK’s exit from the European Union looms, strategists are split on whether the nation’s stocks are cheap enough to outperform in an environment of intense political uncertainty. Sanford C. Bernstein calls the market “uninvestable,” while Citigroup Inc. says investors have already offloaded British stocks aggressively.

“There will be opportunities thrown up by Brexit, there will be new things to buy and we’ll need to be nimble in the marketplace to take advantage of the opportunities, but we’re not going to build a portfolio designed around hard, soft or no-Brexit,” said Murphy.

He is confident that value shares will beat growth stocks over the next three to five years. Global value equities have outperformed growth shares for the past three months, triggering speculation that investors are rotating into lower valuation stocks as they prepare for an economic slowdown and end to the bull market. After the dot-com bubble peaked in 2000, value beat growth in the US for almost seven straight years.

Pearson, the fund’s top holding, surged 7.2 per cent last month while the FTSE 100 Index fell 2.1 per cent. Glaxo jumped 7.3 per cent, whereas BP tumbled 8.3 per cent as oil slumped.

“We spend our entire day with our heads in reporting accounts, looking at the company financials, and trying to find new cheap things to buy,” said Murphy. “And we don’t react to the markets and we aren’t emotional, and we don’t panic, and we don’t get greedy, we continue look at all the opportunities we can find.”

TAGS : Donald Trump, Kevin Murphy, Schroder Income Maximiser Fund, Stoxx Europe 600 Index, Citigroup Inc.

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