Hence Odey’s Pan European fund, launched in November 2002, is ahead of its peer group over 12 months, posting a 24.48 per cent performance against the 19.27 per cent S&P/Citi BMI Europe index and 12.95 per cent sector average. A closer look at the fund’s performance shows negative performance, albeit well ahead of the index until the market rallied in spring 2003. There is a broad trend with the index thereafter but a negative correlation during the next mini-slump.
“Our long-only strategies are ahead of the market due to our genuine understanding of risk,” says Tim Arengo-Jones, Odey’s head of European marketing.
Other managers were cutting active risk and hugging the index, he says, while Odey wanted to be as far away as possible from the index during the downturn, believing that market risk was the biggest enemy. He says technical analysis showed downward trends in almost every market sector, so the pan-European fund shaped itself as a small cap value fund at the time of launch, taking refuge in defensive stocks.
In 2002, the fund was weighted towards oil services, mining, property, utilities, food, beverages and tobacco. Favoured oil stocks still include BP Amoco, BG Group and Statoil. The British Land Company is held in the real estate sector and utilities include United Utilities and Severn Trent.
But by the time European markets adjusted upwards early last year, Odey had taken a fundamentally bullish view, and had chosen more stocks which would participate once more in a market rally. But it is in bear markets when Odey’s fund puts clear water between itself and the index.
The fund’s manager, Hugh Hendry, joined Odey in 1999, after a brief stint at Credit Suisse Asset Management, the bond-dominated house where he was supposed to be building an institutional equities desk. However, legend has it that his boss was making a presentation to Mr Odey and fell ill. Mr Hendry was sent in his place, and the two shared such common beliefs on risk management that they never looked back.
Mr Hendry also ran several long-only pan-European equity institutional briefs, which have since been handed over to Feras Al-Chalabi, recently promoted from equities analyst to portfolio manager. These segregated briefs worth $200m (e163m) managed for US pension fund clients are more flexible, as they allow greater weightings to emerging Europe and allocations to government bonds. Mr Al-Chalabi will be launching a sister fund, managed along the same principles as Mr Hendry’s fund, later this year.
The new Dublin-domiciled institutional fund will have a E5m minimum investment and will include a performance-related fee structure.
Odey currently runs $2.2bn, but much of the insitutitonal money comes direct rather than through consultants. “Consultants often find it difficult to really get to grips with the way we work, when it comes to our risk-management techniques, which are qualitative rather than quantitative,” says Mr Arengo-Jones.
Although consultants often visit Odey, they criticise the house for being understaffed in research terms, as it focuses on top-down decisions, rather than stockpicking.
“We ignore sectors of the market for large periods of time, so there is no point in directing our resources into areas of no interest,” says Mr Arengo-Jones.
Top five equity Europe funds over one year to 12/7/04
Rank - Fund Growth
1 - LMS European Eqty 1 Class Euro 27.53%
2 - Odey Pan European Fund 24.48%
3 - HSBC Prime European Equity 18.04 %
4 - Axa Rosenberg Pan Eur A 16.75%
5 - CIF European Equity Fund A 15.91%
S&P/Citi BMI Europe index 19.27%
Sector average 12.95%
Source: Standard & Poor’s
Performance statistics: pages 42-43
