European managers suffer from inaction

MANAGERS in European funds management markets who did not manage to adapt to volatile markets over the past three years suffered most, according to financial information providerStandard & Poor’s.

The research house’s European Fund Sector Report claims that managers who stuck to their normal discipline of buying stocks for absolute growth based on fundamental quality assessment instead of selecting on price suffered.

The report also says that while the industry has traditionally frowned on high turnover of underlying investments within portfolios due to a need to reduce costs, it can actually add value in volatile markets, as five of the seven best large cap managers showed turnover substantially above the average of 104 per cent for 2002.

At an operational level, the sector report says the better managers were able to combine elements of growth and value in their investment style to protect their performance from the extremities of style risk over the past five years.

Standard & Poor’s says that despite all these factors, the key to success for managers in Europe over 2002 was their ability to avoid all stock-specific disasters.

The European sector report shows European markets fell for the third year running, with the regional mainstream indices losing nearly a third of their value over 2002.

Across the range of rated European large-cap funds within the report, all showed a loss of at least a quarter of their value during 2002.

Over the year as a whole, small caps outperformed large caps by some 500 basis points, but performance was volatile, according to the report.