Fund of the week: Put your money into European banks

Falling oil prices and a rising sense of optimism about an upward trend in long-term growth have driven markets across Europe to five-year highs in recent weeks. But Hugh Cuthbert of the Edinburgh-based SVM Continental Europe Fund reckons markets could go still higher. “With Europe still seen as at an earlier stage of the economic cycle,” he says in his monthly fund review, “the environment is positive for equities.”

Cuthbert assumed management of the fund at the start of this year. During his tenure, it has achieved a 20.1% return against a European sector average of 17.3%. He tells What Investment that he always takes a “bottom-up” approach to picking stocks for the fund. With 1,000 brokers covering each large cap, Cuthbert believes it is easier to find “more interesting data” on small- and mid-cap stocks. In March of this year, however, the fund’s focus “shifted from small-cap toward large-cap offerings because we saw that the markets had had a good run”.

The fund has been heavily concentrated in industrials and consumer service holdings, but has recently shifted more towards financials: over a quarter of the portfolio is now invested in the sector. “European financials have seen heavy consolidation, particularly in Italy” – which is why the fund holds BNP Paribas and Crédit Agricole, both of which are involved in Italian banks.

Meanwhile, “there are small banks in our stock universe that can provide very good growth”, he tells Investment Week. One such stock is Danish regional bank Ringkjobing Landbobank, which has a 50% market share in its region.

Contact: 0845-066 1110

SVM Continental Europe Fund top ten holdings

Name of holding      % of assets

BNP Paribas                    3.7%
Rinkjobing Landbobank      3.5%
AstraZeneca                   3.5%
Unicredito Italiano            3.3%
C&C Group                      3.3%
Total                             3.2%
UBS AG (Rgd)                  3.2%
Sogecable                      3.1%
Danone                          3.0%
Implenia AG                     3.0%


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