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Eurozone recovery entering new phase, says French boutique star

Eurozone recovery entering new phase, says French boutique star

The slowing of recovery efforts in the eurozone should not convince investors the region will fail to get back onto a strong growth footing.

That is according to Citywire AAA-rated manager Isaac Chebar of Paris-based boutique DNCA Finance.

Speaking to Citywire Global, Chebar said major structural changes being undertaken in southern Europe needed time to take hold.

High profile managers, such as Laurent Dobler of Comgest, have been vocal over the fact the momentum of a European recovery has now dwindled. But, Chebar is more upbeat.

‘Basically we have had two phases,’ Chebar said. ‘The first was at the start of the year up to May when people were strongly stating Italy would be growing by the second half of the year.’

‘There was a belief that non-performing loans were peaking and the introduction of a new prime minister, Matteo Renzi, a relatively young guy, gave the country a lot of hope, which was transmitted into the market.’

Courageous Renzi

However, Chebar, who is lead manager on the DNCA Invest Europe Values and the DNCA Invest South European Opportunities fund (formerly the Italian Opportunities) fund, said investor sentiment had been shaken.

‘People want reform tomorrow but political reform doesn’t work that way. It takes time and discipline and I would say Renzi has been quite courageous on his efforts to convince the senate that they need to relinquish some of their own power to get this done.’

Chebar said the pace of reform had led to an ‘air pocket’ between expectations and delivery, which had led to a correction in the market. However, he said this is an exceptionally short-sighted view.

‘People are losing faith but I don’t think they should lose faith. Efforts like Renzi with the senate in Italy shows the willingness to accelerate reforms, which can only be the right path to take.’

Sticking with stock bets

At present, Chebar has 55% of his South Europe Opportunities fund invested in Italy, while it makes up 13.6% of the broader Value Europe fund. He said the country currently lags Spain in its reform efforts but there are still several bright spots.

These include asset management company Fineco, which was added as a 2.5% fund stakeover the past month, as well as oil and gas company ENI, which is among the top holdings at present.

‘A lot of ENI’s assets are in Egypt, Libya and the Middle East, which is not an ideal place to be at present, but the new CEO has made it quite clear that there is a need to be more profitable. This means future development could be particularly exciting.’

Cap change

When the fund was converted from being a dedicated Italian equity fund to a broader fund in July, Chebar took the opportunity to increase the number of large-cap bets in the portfolio.

‘We had held a number of small - and mid-cap companies because, last year, they were undervalued but we are finding that the advantage was no longer there and liquidity was also a consideration. When we changed the fund we used the opportunity to add more large-cap names.’

The fund now has a barbell approach with 40% allocated to companies with a market cap of €1 billion-€5 billion and 43% invested in companies of €10 billion or more.

The most recent available fund data refers to the DNCA Invest Italian Opportunities fund, which returned 45.5% over the three years to the end of July 2014 in euro terms. Its benchmark, the Comit Globale R, rose 15.2% over the same period.

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