Fund Objective

The objective of this Fund is to achieve capital growth through investment in securities of European companies.

View on Past Performance

The Legg Mason Continental European Equity Fund increased by 4.75%1 in euro terms during the quarter, compared to a rise of 6.96% recorded by its benchmark, the FTSE World Europe ex UK Index.Stock selection proved to be the primary reason for this relative underperformance, as the Fund's sector allocation had a broadly neutral effect on relative returns. Areas in which stock selection was detrimental included the industrials, financials ex-banks, and information technology sectors. In some cases, this was because of stocks that the Fund did not hold, such as Alstom, the big French power and transport group, and Switzerland's ABB, a world leader in automation technology.Elsewhere, selections among banks and consumer discretionary stocks made positive contributions to returns. French banking group BNP Paribas was a strong performer, for example, and the Fund was overweight in this stock. In the consumer discretionary group, the Fund's position in German car maker DaimlerChrysler was also beneficial as the stock performed strongly after selling its loss-making stake in Chrysler.As for sector allocation, meanwhile, the Fund's overweight exposure to the materials sector was a positive influence on its returns, while being overweight to the consumer staples group was a negative consideration.

Future Expectations

The Fund's investment manager notes that European companies are continuing to benefit from strong European and global growth, as well as further restructuring, and are continuing to deliver in terms of earnings growth and cash generation. The manager notes that re-leveraging remains an important theme. Strong global growth and corporate profitability has meant that balance sheets are awash with cash.Against this backdrop, the investment manager continues to believe that European equities continue to look attractively valued. Interest rates have been rising and the market expects the ECB to implement further increases this year. The manager continues to expect, however, that economic growth and corporate earnings will be strong enough to withstand higher rates, although rates of earnings increases may moderate.

Fund Details