by Amy Williams on Aug 25, 2010 at 07:01
Despite pervading negative newsflow from both Europe and Japan, Eduard Frauenfelder, manager of the Julius Baer EF Global Contrarian fund remains optimistic about the value in their stockmarkets.
Thinking ahead to the final quarter of the year as the summer draws to a close, Frauenfelder said: ‘In the next quarter’s allocation we will move more into Europe and Japan with US exposure lessening. Japan looks very cheap, we think it has a high recovery potential and the Euro is also attractively valued.’
With a bias for developed markets, Frauenfelder’s European focus centres on France and Germany. He has little regard for emerging economies and also steers clear of southern Europe as he believes the region is ‘not yet plausible’ mainly because of the expensive round of refinancing that still has to take place.
Although regional asset allocation plays an important role in the portfolio’s construction, Frauenfelder is keen to point out that it is his stock picking approach that really differentiates the fund. ‘We like to make money without having to rely on a bull market,’ he said.
The Citywire AA-rated manager is a typical value investor, investing worldwide in companies with valuations which, in Frauenfelder’s opinion, are too low and so display strong potential for price gains. ‘Some stocks fall out of favour for a reason, others fall forever; it is my job to provide the safety net that catches them.’ Once caught, he then puts the companies through a rigorous analysis in order to identify financially sound companies with very solid balance sheets.
On his selection process he said: ‘I prefer diversified companies with more than one product line.’ He therefore avoids many companies in the technology sector as ‘they may release one product then a few months later a better version will come out. I prefer stocks that don’t go in and out of fashion.’ A technique he refers to as ‘avoiding torpedoes’.
He favours large liquid companies with sustainably high dividend yields but stays away from cyclical stocks.
He has recently reduced his L’Oreal exposure and scaled back on Siemens as he thinks both stocks became expensive. In their place he bought the German utility company E.ON, while in the UK he has reduced his holding in United Utilities.
Over a three year period the Julius Baer EF Global Contrarian fund has lost 5.39% against a loss of 17.95% from the MSCI World index. He is AA-rated by Citywire for his risk adjusted performance.
The fund is set to be renamed at the beginning of September – to Julius Baer EF Special Value Stock fund – but its strategy will remain unchanged.