Fund Objective

The aim of the European Growth Fund is to achieve capital growth.

View on Past Performance

European equity markets had a turbulent quarter. As concerns over the effects of the credit crisis initially waned, markets recovered from the March lows in April and May. The relief was, however, only temporary as fresh concerns over inflation in the face of rising oil and commodity prices re-emerged. As a result, equity markets fell sharply again towards end of the quarter and closed at the lowest level for 2½ years.The Singer and Friedlander European Growth Fund outperformed the benchmark over the quarter by 66bp finishing the period down 4.54%. Over the quarter, Energy was the best performing sector, gaining 15.4% as oil rose to historical highs of $146 a barrel. Materials were also strong gaining 4.5%, whist Financials, which account for over 25% of the index, was the worst performing sector falling 12.8%. On a country basis, Norway gained 14.2%, while Belgium fell 18.8%. The major markets ofGermany and France fell 1.9% and 3.4% respectively. Economic performance indicators from Europe weakened over the quarter, with only German manufacturing remaining relatively resilient to the downturn in western economies. Consumer sentiment continued to deteriorate across the region. Unemployment generally rose in Europe, with Spanish and Irish employment falling heavily. German unemployment, however, remained at its 15 year low. Despite the general slowdown in Europe,inflation has remained stubbornly resilient, rising to 4% year on year at the end of June, the highest level for 16 years. This is well above the ECB target of 2%. As a result the ECB hinted at a rise in interest rates during the summer months. While we expect the bank to remain hawkish in its rhetoric, we do not expect this to be the start of a new hiking cycle, as long as inflation stabilises.

Future Expectations

As expected, analysts consensus estimates have been further revised downwards from 8% at the beginning of the year to 3% currently. We believe, however, that there are more downgrades to come as macro economic uncertainty and growing price pressure start to bite. The forward P/E multiple of the European market is now at 10x, the lowest for 17 years, which, combined with the fact that European markets are down 16% year to date, suggests that equities are not expensive.The global macro economic backdrop has materially deteriorated, however, and the market is not yet attractively valued enough to tempt us to abandon our defensive stance.

Fund Details