Fund Managers Size Up Eurozone

Terry Flanagan

Asset managers are warily eyeing the Eurozone economy, with regulations and monetary policy top of mind.

“The outlook for the European economy is not great, and the latest revisions are going towards less growth than previously estimated,” said Nicola Marinelli, portfolio manager at Glendevon King Asset Management in London. “Some economies are still suffering like in Italy, but the bad news is that since the sovereign crisis broke out very little has been achieved in countries like Italy and Spain to improve the competitiveness. Hence the long-term prospects are not fantastic and everything seems to rely on the role of the ECB as the buyer of last resort.”

Regulations, in the form of the Alternative Fund Managers Directive, are impeding hedge funds from being more proactive with their investments.

“Growth of AUM is an increasingly difficult exercise for small companies, and new regulations like AIFMD are putting even more burdens on small companies, with the net effect of reducing the overall level of competition,” said Marinelli. “We are looking at strategic ways to grow the AUM through M&A rather than organically.”

Others take a less dim view of the Eurozone’s prospects, however.

“Prospects for Europe have improved markedly over the past twelve months,” said Daniel Murray, global head of research at EFG Asset Management in London. “Turmoil associated with the sovereign debt crisis has subsided, thanks in no small part to the actions of the ECB and its President Mario Draghi.”
Trade balances have improved meaningfully in many peripheral nations and budget deficits are generally moving in the right direction. This cyclical improvement is evident in indicators such as better PMIs whilst equity markets look to be attractively valued.

“We have been steadily increasing our exposure to European equities in response,” Murray said. “We are, however, more cautious on the longer term prospects since there are a number of fundamental impediments. These include: insipid domestic demand, weak bank lending due in part to ongoing regulatory and legal issues, the lack of deleveraging, poor demographics and structural rigidities.”

At EFG, Murray oversees the research process across mutual funds, equities, fixed income and macroeconomics. This entails ensuring that the different areas are appropriately resourced and structured while making sure that everything is running smoothly on a day-to-day basis.

“It’s also important to encourage the different functional divisions within research to communicate effectively with each other, something which I think provides us with an edge as it can provide useful cross-fertilization of ideas.” Murray said. “Communication with portfolio managers, private bankers and clients is important as well.”

Murray also acts as an economist and strategist. “This is a broad role,” he said. “It entails constant monitoring of data, political developments and any other news flow which may be relevant to the economic outlook and its interaction with financial markets. This then feeds into our asset allocation views and investment strategy.”

Glendevon King’s Marinelli said that “in the short term we go with the trend of being long the periphery, but we are cautious that a rise in yields on Bund (UST, Gilt, etc…), could have negative implications also for the other countries.”

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