Italian referendum prompts fund manager bargain hunting

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Fund managers are hunting out bargains in unloved Italy ahead of the country’s constitutional reform referendum this weekend, which is expected to create political uncertainty if voters reject the measures.

Polls in the southern European economy point to a ‘no’ vote and Prime Minister Mario Renzi has indicated he could resign in such a scenario.

Italian equity markets have suffered a 20 per cent drop this year, exacerbated by concerns about the country’s struggling banks, notably Monte Dei Paschi.

However, financials is where Mike Clements, manager of the Oyster Continental European Selection fund at Syz Asset Management, is seeking opportunities.

“With polls suggesting that the Italians could reject the proposed reforms in the referendum, we fully expect more uncertainty. This suits our contrarian style,” Clements says.

“Banks aside we are seeing attractive opportunities in the broader sell-off,” Clements says.

The fund has bought into non performing loan servicer Eurocastle and asset manager Anima.

“Anima is the largest independent asset manager in Italy, and its shares have been under pressure mainly due to the troubles of some of its distribution partners including Monte Dei Paschi.

“However, at current levels we feel much of the risk is priced in and actually there is considerable upside from its developing relationship with Poste Italiane.”

The T Rowe Price Continental European Equity fund has a modest overweight exposure to Italy, but holds companies like multi-utility company Hera and natural gas infrastructure business Snam.

Dean Tenerelli says: “Our largest exposure is to regulated utilities, which we believe should be relatively insulated from any economic and/or political shocks.”

Manager of the EdenTree Amity European fund Chris Hiorns holds a position in unloved ENAV, which offers a yield around 6 per cent.

“Rising bond yields and the threat of Renzi resigning if his referendum on a new Italian constitution fails to pass has led to a very sharp sell-off in Italian interest rate sensitive stocks.”

Hiorns says Italy has been described as “untouchable” by one analyst he spoke to.

“ENAV is the Italian air traffic control company and was recently sold by the Italian government through an IPO at €3.30 and subsequently rose after float in July to a high of €3.80. The rising bond yields and increased risk premium for Italy has sent the share price plunging to around €3.”