Odey Continental European - Fund Update
By Alexander Davies | 25 Feb, 2008
Last September we removed this fund from the Wealth 150, a list of our favourite funds in each sector. Returns had been poor and our analysis suggested this may be due to the manager’s stock selection. Since then the stock selection has improved and we met with the fund manager, Feras Al-Chalabi, to discuss possible reasons why.
He has positioned the portfolio defensively; investing in areas of the market that are less sensitive to changes in the economy. Through 2007 he has also avoided investing in banks, and reduced his position in smaller and medium-sized companies. During the recent volatility this helped shield the fund, as these sectors have been hit particularly hard.
Feras Al-Chalabi believes that European markets still face some headwinds. He feels the ill effects of the global sub-prime mortgage market will continue. Also, if the Euro remains strong, European manufacturers will be hindered. The price of raw materials is rising across the world and the manager believes in some cases these costs cannot be passed onto consumers. Therefore companies further up the supply chain will have to bear these expenses, which will affect their profits.
For the moment Feras Al-Chalabi will continue to look for defensive companies; with strong, growing dividends, which could perform in adverse conditions. He is still finding opportunities to potentially profit. For example, farmers could benefit from rising crop prices. Gold often performs when stock markets are uncertain. He believes some telecoms firms could be well positioned to grow their profits. Al-Chalabi maintains some exposure in these areas.
Although past performance is not a guide to the future, historically this fund has performed well when the market has been turning, or going through a period of uncertainty, similar to the market we are currently experiencing. However, it is also the case that the fund has not always continued to out perform once markets have settled.
With this in mind we would prefer to wait and see how the fund fares from now. If markets settle and the fund continues to perform we will reconsider its inclusion in the Wealth 150. For the meantime we suggest existing investors continue to hold and we will carry on monitoring this fund.
