Domestic-facing companies are proving the prime picks for Citywire AA-rated European equity specialist John Baker.
Baker, who runs four European and eurozone equity funds at JP Morgan, said domestic earnings had helped driver performance over the past 12 months.
‘In the current portfolio, a lot of companies we’re finding attractive are more exposed to Europe. For instance, in UK house building stocks, revenues are coming from Europe,’ he said.
‘The same applies for airlines and shipping, where we find domestically-oriented companies attractive. So on balance, the portfolio is more exposed to the European recovery than what’s happening in the rest of the world at the moment.’
‘Paper and packaging worked well for us, they’re among the best performers over the past 12 months. UK house builders have been extremely powerful, along with Irish financials. Aerospace and domestic airlines have also worked well,’ he said.
Despite positive performance on several fronts, Baker did admit to having missed out on the rally in pharmaceuticals. He currently has 9.4% in healthcare stocks.
‘What hasn’t worked for us was an underweight position in pharmaceuticals. I think they rallied on valuations, and while we like to see cheap valuations, we also like to see a catalyst,’ he said.
‘We saw pharmaceutical stocks were approaching the end of the patents and their market share would be diluted by generic drugs which are cheaper.’
In the mid-to-long term, Baker expects emerging market growth to further drive pharmaceutical company growth.
‘Longer term, the growth and wealth of economies like India and China should see the rise in affluence and corresponding diseases associated with it.’
‘So there will be demand for drugs to combat those diseases. But not owning pharmaceuticals has been negative for the portfolio over the year,’ said Baker.
Over the three years to the end of November 2013, the JPM Europe Dynamic A Dis EUR fund returned 49.54%. This compares to a rise of 36.31% by its benchmark, the MSCI Europe NR EUR, over the same period in USD terms.