Premier's Rupert Morrell hopes to turn around the fortunes of his flagging fund over the next year by moving into overlooked on-line gaming stocks.
The 13 million pound European Growth fund has had strong performance since Morrell took over the fund in June 2005, but has only matched the average manager in the IMA Europe ex-UK sector over the past year due to poor market timing and stock ideas.
Yet he hopes to turn this around by moving into controversial on-line gaming stocks, which is one of his largest sectoral weightings at 5.5 percent, such as Austrian company Bwin Interactive and Swedish on-line gaming company Unibet.
He believes that these stocks are undervalued following the controversy over on-line gambling last year, when the US congress outlawed credit-card and money-transfer companies from accepting payments to gambling websites.
This effectively halved the value of some large-cap online gambling stocks such as BetOnSports and PartyGaming , and caught out some of the most experienced stockpickers in the industry, including Fidelity's Anthony Bolton.
Yet Morrell said that his choices have no exposure to the US and have impressive valuations following the global sell-off. Although Unibet has one million active customers across Europe, it is trading on a price-earnings ratio of nine. It also has a 7 percent dividend yield.
He said: "No-one is in this sector any more, since everyone said 'that's it for on-line gambling' last October. But there are real under-valued gems here."
The gaming stocks fit into the large 43.77 percent 'other' weighting of the fund, which is made up of an eclectic range of stocks favoured by Morrell such as Semapa, a Portuguese cement producer that has a 68 percent stake in pulp and paper manufacturer Portucel. He also has several alternative energy stocks.
All of the stocks are in 'old' Europe following what Morrell terms a ‘poorly timed' move into Eastern Europe last year, one of the main detractors from his performance in 2006.
He bought Hungarian bank OTP following the drop in markets in the spring of last year as he expected emerging markets to recover quickly from the correction. The stock took too long to recover however and he had to sell as he must cut any position that loses more than 15 percent under his mandate. OTP bounced back 50 percent shortly after he had sold it later in the year.
He said: "The experience showed me that my skill set is in mainland Europe. That's where I have stayed since and have found some stocks like Austrian Airlines have done well and actually turned our performance around in the second half of the year."
A high cash position of up to 10 percent following the correction also acted as a drag on performance. However he has gone back into cash now with a weighting of 8 percent due to a lack of suitable growth opportunities.
He took over the fund after James Buckley moved to run an almost identical vehicle at Baring Asset Management in 2005. Morrell previously ran hedge funds through his own eponymous company, and has introduced more aggressive hedge fund style techniques to the fund, in contrast to Buckley's buy and hold mentality.
The fund has a two-tier investment strategy: 70 percent consists of a core basket of ideas and 30 percent is made up of a short-term trading element that provides the majority of the fund's alpha.
It will start using UCITS III powers from May, but Morrell said that he will not employ the full range of derivatives-based instruments he used during his hedge fund days:
"We are trying to keep things fairly simple. We're not going to be selling options and do not want to be a hedge fund. We see ourselves as a long only fund but with more flexibility.
"Competitors run the risk with UCITS of offending investors, as it is something quite different to what was being offered before. We don't have that risk, we have a relatively small number of investors and they seem happy with the change."
(c) Citywire Financial Publishers Ltd 2007.
The 13 million pound European Growth fund has had strong performance since Morrell took over the fund in June 2005, but has only matched the average manager in the IMA Europe ex-UK sector over the past year due to poor market timing and stock ideas.
Yet he hopes to turn this around by moving into controversial on-line gaming stocks, which is one of his largest sectoral weightings at 5.5 percent, such as Austrian company Bwin Interactive and Swedish on-line gaming company Unibet.
He believes that these stocks are undervalued following the controversy over on-line gambling last year, when the US congress outlawed credit-card and money-transfer companies from accepting payments to gambling websites.
This effectively halved the value of some large-cap online gambling stocks such as BetOnSports and PartyGaming , and caught out some of the most experienced stockpickers in the industry, including Fidelity's Anthony Bolton.
Yet Morrell said that his choices have no exposure to the US and have impressive valuations following the global sell-off. Although Unibet has one million active customers across Europe, it is trading on a price-earnings ratio of nine. It also has a 7 percent dividend yield.
He said: "No-one is in this sector any more, since everyone said 'that's it for on-line gambling' last October. But there are real under-valued gems here."
The gaming stocks fit into the large 43.77 percent 'other' weighting of the fund, which is made up of an eclectic range of stocks favoured by Morrell such as Semapa, a Portuguese cement producer that has a 68 percent stake in pulp and paper manufacturer Portucel. He also has several alternative energy stocks.
All of the stocks are in 'old' Europe following what Morrell terms a ‘poorly timed' move into Eastern Europe last year, one of the main detractors from his performance in 2006.
He bought Hungarian bank OTP following the drop in markets in the spring of last year as he expected emerging markets to recover quickly from the correction. The stock took too long to recover however and he had to sell as he must cut any position that loses more than 15 percent under his mandate. OTP bounced back 50 percent shortly after he had sold it later in the year.
He said: "The experience showed me that my skill set is in mainland Europe. That's where I have stayed since and have found some stocks like Austrian Airlines have done well and actually turned our performance around in the second half of the year."
A high cash position of up to 10 percent following the correction also acted as a drag on performance. However he has gone back into cash now with a weighting of 8 percent due to a lack of suitable growth opportunities.
He took over the fund after James Buckley moved to run an almost identical vehicle at Baring Asset Management in 2005. Morrell previously ran hedge funds through his own eponymous company, and has introduced more aggressive hedge fund style techniques to the fund, in contrast to Buckley's buy and hold mentality.
The fund has a two-tier investment strategy: 70 percent consists of a core basket of ideas and 30 percent is made up of a short-term trading element that provides the majority of the fund's alpha.
It will start using UCITS III powers from May, but Morrell said that he will not employ the full range of derivatives-based instruments he used during his hedge fund days:
"We are trying to keep things fairly simple. We're not going to be selling options and do not want to be a hedge fund. We see ourselves as a long only fund but with more flexibility.
"Competitors run the risk with UCITS of offending investors, as it is something quite different to what was being offered before. We don't have that risk, we have a relatively small number of investors and they seem happy with the change."
(c) Citywire Financial Publishers Ltd 2007.
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