Euro Stars A-rated manager Pascal Riégis has said he will stick by his structural underweight to financials regardless of the performance of the sector.
Riégis, who runs the €1.1 billion Oddo Avenir Europe fund, said he has zero exposure to banks despite his benchmark's 21% allocation to the sector.
Instead the small and mid cap specialist has adopted a strong bias towards industrial and chemical names – which make up a combined 40% of the fund's sector exposure – as he sees much more variety than in banking and insurance stocks.
‘Companies have to offer a product or service where there is no obvious substitute. They have to show they can make profit all over the world and they are profitable both in times of prosperity and recession,’ he said. ‘Financials do not fit this ideal.’
‘They look too much alike, where is the edge? If you look at a bank, it is no different to another bank. Or an insurance firm compared to another insurance firm. They are essentially commodities which can only grow through acquisitions.’
Riégis said, regardless of any strong financials performance, he will not be tempted to invest. ‘There are perhaps some good opportunities but they do not fit our strategy,’ he said.
Selling down exposure
Elsewhere in his fund, Riégis said he opted to gradually reduce exposure to German chemicals firm Brenntag over 2012 before exiting completely at the end of December.
This marks a significant change in the fund, which Riégis has run since September 2003 with a long-term buy and hold mindset.
‘It is a very good managed business, which has a good position and entered into other markets in the United States and Asia, so it is becoming a global company as well. The stock did very well for us over the last two or three years and we sold it as the share price was nearing €100,’ he said.
‘It was closed because the potential of the stock was well recognised by the market and more and more people have taken a positive stance on it. It has performed well and so most analysts will have it on a buy and for good reasons, but we believed when it neared €100 per share it had realised its potential.’
Riégis opted to reallocate this capital to DSM, which is the current largest position in fund at 5.8%, as well as opening a new position in animal feed and food processing firm Nutrico. This is while also putting more money into cash, which currently stands at 11%.
The Oddo Avenir Europe fund returned 34% in the three years to the end of December 2012. This compares to its Citywire benchmark, the HSBC Smaller European (Inc UK) Companies TR, which rose 27.04% over the same period.