‘Worst is behind us’, says New Star

New Star predicts Europe will prove the negative views of the consensus wrong and surprise on the upside.
Mark Harris, head of investment management at New Star’s fund of funds division, says the dollar will be stronger than most people expect and will not continue to fall against the euro and sterling.
He says: “The key is whether the dollar stabilises for a period. There are indications from the French and German central banks that the dollar can push only so far, then there will be intervention. I am not saying it is all over for the dollar, but the worst is behind us for the time being and the fact that there could then be some increase in economic growth has not been factored into the market.”
He adds that if dollar strength and limited US interest-rate rises are combined with an easing of monetary policy by the European Central Bank, this will lead to a number of upside surprises for Europe. European companies to benefit will be those with reasonable balance sheets in the mid-cap area, which, although not the biggest exporters to the US, have better opportunities at the stock-specific level, according to Harris.
As a result, New Star’s funds of funds are holding those managers with a bias in this area, such as the Artemis European Growth, Neptune European Opportunities and Baring European Select funds.
Most fund managers, however, are cautious and are underweight France and Germany in particular. New Star is more optimistic on these countries and recently bought the Baring German Growth fund for single-country exposure.
As a result of Harris’s views on Europe’s potential, the global fund at New Star has overweighted Europe if Eastern Europe is included. Harris has bought into the Pictet Eastern Europe and Baring Eastern Europe funds: “Most of the benefits for these countries joining the European Union in May have been priced in, but there are still good value assets in Russia as the oil and commodity prices are high and they are major beneficiaries.”
Harris admits that if the US Federal Reserve were to aggressively tighten its monetary stance, his view would be reversed.