By Joanne Frearson
LONDON, Feb 3 (Reuters) - Baring's Europe Select Trust is being positioned slowly away from defensives into cyclical stocks, such as Hannover Re and Ryanair, as valuations begin to look attractive, its fund manager said.
Nicholas Williams, the fund manager of Baring's 200 million pound Europe Select Trust, told Reuters he has been slowly increasing his exposure towards cyclicals from the end of 2008.
"Clearly equity markets have fallen a long way, equities look cheap relative to bonds and the return on cash. If you have any belief in the long term prospects and profitability of some European companies, equities are an attractive asset class right now," Williams said.
"The question now is whether the share price for cyclicals has fallen enough to fully discount the bad news. There are a number of companies now trading without a significant premium to the cash on their balance sheet," he added.
The fund manager, who has 19 years of investment experience, said companies with a strong balance sheet are going to be in a position to survive for a couple of years despite the depressing economic outlook.
"At the same time we have all these stimulus packages being released in the U.S., UK, Japan, China, Europe and when they start to have an effect, in the end, companies are going to benefit significantly," he said.
FAVOURS REINSURERS, MATERIAL SECTOR
Recently Williams has been buying reinsurance companies and added Hannover Re on to his portfolio in January.
He said unlike most financial sectors the reinsurers are expecting to see the cost of individual premiums rise this year.
"The reinsurers are seeing pricing strength. Companies have been through some torrid years in 2003-2005 and did not do very well. Since then they have been restructuring their balance sheets and unlike the banking sector do not have much toxic assets on their books," he said.
"Their investment portfolios are now high quality."
Another sector Williams favours is the railway as it is being upgraded throughout Europe and companies have been announcing solid results.
He has signalling equipment group Ansaldo STS in his portfolio as its order books are pretty strong and the company is growing not just in Italy but internationally.
In the airline industry, Williams said RyanAir would do well, benefiting from the fall in oil price as well as consumers trading down to cheaper carriers.
He bought some Ryanair stocks in the fourth quarter of 2008.
Towards the end of last year Williams also increased his exposure to the materials sector.
He has invested in German steel company Salzgitter. He likes this company as 50 percent of its market capitalisation can be explained by cash on its balance sheet.
However, one sector which Williams sees as expensive is healthcare and is considering selling French healthcare diagnostic group BioMerieux as it is close to its price target. (Editing by Jon Loades-Carter)