Best Opportunity In European Long Short In 5 years

From RWC Partners Limited

Commenting on the current opportunities for long short equity investors in Europe, Ajay Gambhir, portfolio manager of RWC Samsara and RWC European Absolute Alpha Funds, said:

“The large yield gap between European equities and European credit opens up the opportunity for capital to rotate into European stocks.  Additionally, the dislocations in European equities have been so severe in the recent past that the opportunity for long short investors, between sectors and stocks, is greater than it has been for at least five years.”

The RWC portfolio manager sees several indicators to reflect the scale of opportunity: the dispersion of valuations between European sectors is close to the highest level in three decades, excluding the TMT bubble; the spread of valuations within sectors is higher for the majority of sectors than six years ago before the financial crisis; and 60 per cent of the Eurostoxx index of European stocks has dividend yields higher than the average European BBB corporate bond yield.

Gambhir says “Simply put, the European market is cheap “on average” however there are many expensive stocks within it. For us this allows our funds to profit from shorting expensive stocks as well being long cheap stocks. Economic growth is improving in Europe but is capped by continuing austerity and structural rigidities, as well as global headwinds from the BRICs.  These contrasting influences are generating long and short opportunities.”

There have been significant flows into Gambhir’s European Long Short strategies for twelve months now on the back of sustained strong performance.  As the market cycle matures in Europe and confidence in the economy grows, investors’ appetite to gain exposure to the region is increasing, and long short strategies can provide access with reduced volatility.  Assets in the strategy have increased to $825m today, and RWC say that there is a strong pipeline from both institutional and wholesale investors.



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