SWIP European fund finds value in mid caps

Team-driven research into the mid cap sector has been a driving force behind the long-term performance of the Scottish Widows Investment Partnership (SWIP) European fund.

The fund, managed by Vincent Devlin, has achieved first quartile performance over one, two and three years. This equates to an annualised return of 23.49% over the last three years. The fund has also achieved consistent long term performance, with annualised returns of 15.06% since its launch in 1981.

Devlin attributes the European equity team’s stock picking ability in the mid cap sector to the fund’s success, by adding alpha to the portfolio and bringing a significant bias away from the benchmark to achieve higher returns.

Vincent Devlin, Manager of the SWIP European fund, commented: “Beating our competition consistently is a testament that our research process is the right path to successful investment. The SWIP European Fund backs the best research ideas coming out of the team, and the top quartile performance underlines the stock convictions across the team. Our ability to stock pick at the mid cap level really sets us apart and has been the driving force behind the fund’s long-term performance.

“Diversity across 15 European countries and 35 industries gives a pool of almost 3,000 companies in the European mid cap sector to choose from. Consistently picking the right stocks at the right time requires a disciplined research framework and a motivated team. SWIP has a real asset in having an 11-strong team of analysts assessing the extensive equity opportunities. ”

One of the mid cap stocks that has been successful in the fund is Vestas Wind Systems – a Danish company that produces wind turbines for alternative electricity generation. After analysis of its financial accounts, it was evident that the company’s margins were inferior to its industry peers. Following discussions with the CEO, the management had a path to better profitability, modelling in normalised industry margins revealed a large anomaly in the valuation of Vestas Wind Systems that SWIP was able to exploit to the benefit of unit holders in the SWIP European Fund.

Devlin adds: “Vestas has been a restructuring turnaround story that highlights the benefit of our in-house research. The management team has worked hard to improve returns and, after taking a significant position over a year ago, we have more than doubled our money on the investment.”