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Funds in focus: David Robinson's Melchior European Opportunities fund

Citywire Switzerland examines the performance of the fund manager, who recently won a Citywire Swiss award in his hotly contested category.

European equities have been in vogue since the asset class started rallying at the beginning of the year.

In this competitive sector David Robinson has managed to outperform the average and won a Citywire Switzerland 2017 award in the Equity – Europe category for his risk-adjusted performance over the past three years.

Robinson is a fund manager and investment analyst at London-based Dalton Strategic Partnership, where he manages portfolios with a defensive growth and cyclical growth investment style.

Prior to joining the firm in 2005 he worked at Freshfields Bruckhaus Deringer as trainee solicitor.

Over the coming slides we will dive into the fund's performance, sector allocation and the fund manager's outlook.

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AUM: $611.7 million

Launch date: 4 May 2010

Fund manager: David Robinson

Performance over the past three years: 30.25%

Citywire-assigned benchmark: MSCI Pan Euro TR EUR (p)

European equities is a very competitive sector, with Citywire tracking 307 fund managers, 87 of whom hold a Citywire rating at the moment.

Over the past three years AAA-rated Robinson has returned 30.25% in Swiss franc terms to the end of March 2017, against the average fund manager who returned 2.3% over the same period.

The fund manager received his first Citywire rating in November 2013 and has held a AAA rating since July 2015.

The fund currently outperforms its Citywire-assigned benchmark, MSCI Pan Euro TR EUR, which returned 9.02% over the three years to the end of March 2017.

In terms of performance the Melchior European Opportunities Fund takes the second place over the past three years in the sector and is number five over the past five years.

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Top positions

Irish Continental Group 3.6%

Bayer 3.6%

Amundi 2.9%

FinecoBank 2.9%

Total SA 2.8%

Speaking to Citywire Selector in February Robinson made the case for bottom-up investing, as he believes companies are able to survive the biggest of market shocks if they are well run.

‘There is a quality bias but we also look to identify businesses which may not be the best, but the quality of the business and the returns are steadily improving. These companies can be those which are progressing through self-help, and are becoming better managed,’ he said.

Robinson is also looking for businesses that are improving due to a favourable change in the external environment, such as rivals going out of business or new regulations taking effect.

A case in point is Irish housebuilder Cairn Homes, the eighth largest holding in his fund at 2.6%. During the 2008 downturn some housebuilders were able to reissue equity and recapitalise, while others faced huge losses and were wiped out or nationalised.

‘Cairn Homes managed to sell land at the peak and survived. It was then able to raise equity and spend several hundred million euros on land at a time when most of its competitors were effectively controlled by the government and didn’t have any equity to invest. This meant Cairn Homes could buy land in and around Dublin between 80-90% peak price.’

The housing industry virtually collapsed, but Robinson said demand for homes in Ireland has grown and Cairn Homes is well placed to capitalise on this recovery.

‘As rents are going up, house prices are starting to rise, which puts Cairn in a very strong position,’ he said.

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Top countries

United Kingdom 25.6% vs 28.9% in MSCI Europe index

France 12.1% vs 15.7% in MSCI Europe index

Ireland 11.1% vs 0.7% in MSCI Europe index

Germany 10.9% vs. 14.8% in MSCI Europe index

Netherlands 6.7% vs 5.4% in MSCI Europe index

Robinson is focused on the UK names, which accounts for his fund’s leading allocation by country.

One company where the price was right was Howdens Joinery, a UK kitchen manufacturer. The firm’s share price had suffered due to the UK’s decision to leave the EU, but Robinson believes the business remains a market leader.

‘In the UK kitchen market it is what I call the “category killer”. In the last few years it has consistently grown market share, which has increased from 15% to 30%. It is three times larger than the next-biggest competitor and is an excellent business with strong profitability at 40% return on capital employed.'

Elsewhere the fund manager is overweight Irish names, where he sees a lot of good companies that dovetail with his bottom-up strategy. He said in addition, its low taxes, pro-business environment and young English-speaking population has attracted global household names such as Google.

Robinson said there are many good companies in Ireland that are doing better than their competitors. Strong management ensures that they grow and generate profit. He highlights budget airline Ryanair as an example of a domestic success story.

‘It is a very well-managed airline. If you take out fuel, its operating costs are 50% below EasyJet. What that means is that no one can come close to it in terms of pricing and yield – it is able to offer cheaper fares and make a better return. Ryanair can continue to grow market share in the European short-haul market by generating a huge amount of cash,’ he said.

However, the manager is still cautious despite seeing signs of recovery in Ireland, particularly with companies focused on the country itself.

‘There are a number of favourable dynamics. However, a lot of the domestic parts of the economy have not recovered yet, so we remain positive on Ireland and towards companies that are exposed to construction and consumption generally.’

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Political events can move markets, but Robinson believes their effect is overblown. The manager is not betting on certain countries or sectors for upcoming European elections.

‘Politics can be unpredictable but its impact on the economy can be hard to gauge. It is too early to say what the impact of Brexit will be on the UK, but there is no doubt that so far its economy has held up remarkably well, better than virtually every economist would have had you believe.’

He adds that the sell-off in the market as a result of the US presidential election only lasted a few hours before it reverted to normal. He doubts that right wing candidate Marine Le Pen will win the French elections due to the structure of the country’s voting system. But he does think her victory would cause the most chaos of all the upcoming elections.

‘One thing I have learnt as an investor is one should be reasonable, humble and aware of the limitations of trying to predict what is going to happen. However, at the same time you should recognise that good well-managed businesses can cope with different environments. Capitalism is quite flexible – businesses do adjust.’

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David Robinson
David Robinson
8/257 in Equity - Europe (Performance over 3 years) Average Total Return: 36.62%