Citywire AA-rated James Sym is shunning consumer staples stocks amid high prices and the bond proxy trade ending.
Speaking to Citywire Selector, Sym said companies, such food producer Nestlé and household goods maker Unilever, were being given the benefit of the doubt by some investors.
Despite being highly-rated, Sym said, many firms in the sector are struggling to grow earnings.
'All these consumer staples and bond proxies have done fantastically well on the back of bond yields falling and low inflation. To my mind that trade is coming to an end.
'I can't tell exactly when it is going to finish and I don't know what the catalyst is, but I know is there is no value in those companies.
'A lot of them are having difficulties even delivering on the expectations of today, let alone the expectations of the market in the future given what the ratings are,' Sym said.
Sym said he wants price-to-earnings ratios to drop considerably before considering a reversal of this stance.
‘Their fundamentals have never been so bad, because they have pushed margins so high already, so they have already taken a lot of price,' he said.
'The future expectations have never been so low, but the ratings have never been so high. That is a very bad combination for future share price performance and that is why we are underweight these stocks.’
In terms of geographical allocation, Spain is the third largest holding at 14.7%, which is overweight against the benchmark of 5.5%. Sym said the country’s outlook has improved.
The real estate firm Hispania Activos makes up 3.2% of the fund and Sym is looking to add other interesting firms to the fund.
‘It has done a lot of the hard work, a lot of the structural reform, as it had a painful period, but the politics seems to have sorted itself out. It has got the Catalan succession this year, but apart from that the national politics seem relatively benign. Podemos support has faded,’ Sym said.
‘Two of our longest standing holdings are Spanish financials - Bank Inter and GCO. GCO is a Spanish insurance company, a family business that has been running for 160 years. It is probably one of the best non-life insurance companies I have ever come across. We have owned it for over five years.’
Over three years until the end of August 2017 the Schroder ISF European Alpha Focus fund returned 23.60% in euro terms. This compares to a rise of 19.86% by its Citywire-assigned benchmark, the FTSE World Europe TR, over the same time frame.
However, Sym has managed the fund since February 2016. Since this date, the fund has returned 37.87% while the benchmark rose 19.50%.