Fact Check: Platinum European

In one continent rocked by political turmoil, many investors are turning their backs on investing in Europe at the moment until Brexit uncertainty is resolved. But for those who still wish to include the area in their allocations, one fund stands out as offering an alternative option for portfolios. 

The Platinum European (C share) fund was launched in 1998 and has $889 million in assets under management. Its attraction is that it is one of the few actively-managed funds in the ACS Equity-Europe sector, for investing heavily in Eastern Europe and for returns of more than 1,000 per cent since inception. 

Out of the seven funds in the ACS Equity-Europe sector, only this fund and the Pendal European Share fund are actively managed with the remainder being ETFs from companies like BetaShares and Vanguard. 

The manager is Nikola Dvornak who has worked at Platinum for over 12 years and managed this fund since June 2014. 

According to its Product Disclosure Statement (PDS) it aims to achieve capital growth over the long term, defined as five years or more, by investing in undervalued companies in the European region. Unlike other funds, Platinum has a very broad definition of ‘Europe’ and includes “all countries from the UK to the Ural Mountains, a line which runs from the Arctic to the Caspian Sea then to the Black Sea.”

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It said: “Contrary to the perception that Europe is a dull, mature market with slow growth, we see Europe as offering the best of both worlds as Western Europe’s industrialised economies meet Eastern Europe’s emerging markets. From British and French consumer brands to Eastern European banks, from Scandinavian and German industrials to Swiss pharmaceuticals, we believe there are plenty of gems to be found.”

Although it focuses primarily on Europe, it also has seven per cent allocated to North America, which is the result of investing in companies such as IHS Markit which have their primary listing in the US or those which predominantly conduct their business in Europe. 

Over one year to 31 July, 2019 the fund has returned one per cent which was less than returns of 4.2 per cent by the ACS Equity-Europe sector.  But looking over the long term, the fund has significantly beaten the sector over three, five and ten years, indicating this is only a short-term blip for the fund.

If you look back to the fund’s performance since inception, it has returned more than 1,000 per cent compared to sector returns of 273 per cent over the same period, according to FE Analytics. 

Portfolio construction

In its PDS, the firm says the fund will typically hold between 30-70 securities and will hold no more than five per cent of total assets in any single stock. In line with this, it currently has 47 holdings and its largest weighting is four per cent in an Austrian bank. 

As of 30 June, 2019 the fund has 20 per cent in industrials, its highest weighting, 18 per cent in financials and 12 per cent in healthcare. This includes established players such as Swiss pharma Roche and miner Glencore as well as lesser-known names such as Romanian bank Banca Transilvania.

The firm noted it currently had a skew towards cyclical companies rather than crowded ‘bond proxies’ within the portfolio but that this had been an unconscious outcome as the firm takes a bottom-up approach to company selection. It also shunned the ‘clamouring for safety and predictability’ by investors which was causing high valuations for defensive businesses.

“We investigate a broad range of investment ideas at a company level and invest in those we think have merit. Our portfolio positioning is a by-product of these decisions. It just so happens that the opportunities that are currently appealing to us are increasingly clustered in the cyclical category.”

However, in the short term, the manager said this cyclical bias had been a ‘primary impediment’ to performance with the fund underperforming the index over the last six months. But the firm was hopeful of making a ‘respectable return’ from its holdings in the longer term.

“Our portfolio continues to be skewed to cyclical businesses. These businesses may continue to underperform in an environment of high uncertainty, weak growth and low interest rates. However, the valuation of these stocks is now so low that even with significant deterioration in commercial circumstances, we expect to still make a respectable return on our investment. 

“Evidence that global economic growth is more resilient than expected, or a concerted effort, could be positive catalysts.”