Five year anniversary of New Star Global Financials Fund

Since the New Star Global Financials Fund launched on 28 December 2001, it has been the top performing financials fund in the UK, returning 204.39% against a financial peer group average of just 105%.

Over this period, the New Star Global Financials Fund outperformed the second best performing financials fund by 64.87 percentage points. The fund is ranked eighth out of all 1,229 IMA funds, which between them have averaged growth of just 47.76% over five years.

Guy de Blonay, manager of the £236 million fund, comments on how he has generated strong outperformance, current sector themes and the prospects for 2007:-

“The fund has been successful for various reasons. From a stock picking perspective, I have sought out stocks offering strong free cash flow and growth potential at attractive valuations.

“At a macro level, I have focused on understanding where we are in the market cycle and developed strong themes in the portfolio to benefit from this. Initially, the fund avoided the US stock market because of expensive valuations and expectations of a weak dollar. Instead, it was tilted towards companies that could benefit from the volatility in the markets, such as money brokers and hedge fund managers, while rising premiums meant insurers were also prominent in the portfolio.

“As markets improved in 2003, I repositioned the fund into investment banking and wealth management – sectors geared to rising markets. I also capitalised on strong growth trends in Eastern Europe and Asia.

“The fund had a strong year in 2005, partly capitalising on the above-average growth markets of Turkey and Greece. After a long interval, the fund selectively re-entered the US and also increased its exposure to Japan to capitalise on its recovering financial sector and the return of domestic investors.

“Most recently, the New Star Global Financials Fund had a strong year in 2006, benefiting from European banking sector consolidation. Protectionism is in retreat and cross-border and domestic corporate activity may encourage further re-ratings. The fund has already profited from this trend and many of its portfolio constituents may be involved in further mergers and acquisitions.

“Emerging Europe offers particularly healthy growth prospects although these are best played indirectly. The fund gains exposure by investing in banks with cross-border interests, such as Unicredito Italiano. Western banks are targeting the fast-growing Russian market. Société Générale, another fund constituent, recently doubled its stake in Rosbank and could become the first foreign institution to gain control of a Russian bank, participating in a retail market in which loans and deposits are growing at more than 30% annually.

“Even after 2006’s gains, equities appear attractive by historical standards and even more attractive when gauged against real bond yields. The US housing market has shown signs of stabilising, suggesting that the deceleration in global economic growth will be modest. European financial companies, however, offer more attractive growth potential than their US counterparts and the fund is positioned to benefit as the region’s positive trends continue in 2007.”