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By Brenda Ward
A brand-new fund is targeting northern hemisphere companies, taking advantage of ongoing volatility in Britain and Europe caused by Brexit. JUNO speaks to Founder, CEO, and CIO of Pie Funds, Mike Taylor, about the Pie Growth UK & Europe Fund.
The financial markets in the UK and Europe recoiled in shock when the British people voted in June to leave the European Union (EU), after 43 years of membership. It was an outcome few economists expected, and it destabilised both the British pound and share markets around the world.
For many investors, the vote was bad news. However, where some witnessed chaos and doom, others saw opportunities. One Kiwi fund manager, Mike Taylor, looked at the European financial landscape and decided the time was right to invest in the UK and Europe.
The Pie Growth UK & Europe Fund was launched on 1 November seeking to initially raise NZ$50 million, before soft-closing.
Pie Funds already operates six other funds:
• Cash Plus
• Growth 2
The new Pie Growth UK & Europe Fund focuses on small, listed companies in UK and Europe, with a similar investment philosophy to the approach Pie takes for its Australasian funds.
Taylor says the UK market, in particular, is very similar to Australia and New Zealand. The culture and the accounting standards are the same, which makes the implementation of Pie’s investment strategy much easier.
Taylor recently returned from a research trip to Europe, and believes the number of opportunities and the quality of the companies are “phenomenal”. He says the companies the new fund is selecting are truly global businesses, with world-class operations. “I believe the scale of the opportunity for Pie is significant and I’m personally investing in the fund.”
Taylor will be the portfolio manager of the Pie Growth UK & Europe Fund, and it will be wholly managed by Pie’s in-house investment team. Its investment strategy will follow that of Pie’s Growth Fund, and the new fund will have a concentrated portfolio of around 15 high-growth, small companies.
Before the fund’s launch, the company spent time testing its direct stock-picking approach in the UK and European stock markets. Pie Funds believes its proven investment strategy in Australasia is transferable to the northern hemisphere.
Managing distance and time
The time difference between Europe and New Zealand means their markets are open while Kiwis sleep. To combat this, Pie analysts covering the European markets will spend periods of time in the UK. With time, Pie may open a London office.
Flexibility will be the key to the new fund’s success, says Taylor.
“With the British pound at its weakest level in decades, and a strong New Zealand dollar, we believe now is an opportune time to invest in the UK. For this reason, we will have a very flexible active hedging policy, which may see the fund unhedged when we launch.”
Although the fund trades in sterling, the Pie Growth UK & Europe Fund is priced in New Zealand dollars.
Risks and opportunities
Taylor says the Brexit fallout and other EU political issues are a risk, “but that provides opportunities”.
“For example, we are looking at a number of UK listed businesses that have the majority of their operations in the US. Their share prices were affected by Brexit – but not their businesses. Such volatility provides opportunities for active investors like Pie.”
ILLIQUID: Not easily converted into cash.
SOFT-CLOSE: When a successful fund is no longer open to new investors, in order to restrict its size, so that the fund objectives and performance can be maintained and existing investors protected.
UNHEDGED: No measures taken to protect against currency losses.
• Product: Pie Funds Pie Growth UK & Europe Fund
• Launched: 1 November, 2016
• How it works: The fund invests in a concentrated portfolio of high-growth, small companies in Britain and Europe. Pie Funds manages the fund from New Zealand, and does all its own research. Staff travel to the UK at least quarterly. The company is seeking to initially raise NZ$50 million and then soft-close the fund. Pie Funds has been working on this strategy for 12 months and was already picking stocks in the UK and Europe prior to the fund’s launch.
• Offerer: Pie Funds
• Manager: Portfolio Manager Mike Taylor, supported by analysts Chris Wright and Daniel Sims.
• Minimum investment: NZ$25,000.
• What we like: Pie Funds appears to be the only New Zealand manager offering exposure to a UK and Europe small-cap fund. It focuses on high-growth, small companies, and limits the size of its portfolio, a strategy that’s worked for Pie in the Australasian market. The fund offers diversification in companies that operate globally and can invest when sterling is weak.
• What we don’t like: Returns may be positive or negative, as with any investment. It’s early days to assess the performance of this fund, which has not completed its first audit. Smaller companies are higher risk and can often be illiquid when investors want to sell. The New Zealand dollar is a volatile currency. Pie says it will actively hedge currency, but this still poses a risk if it gets the hedging wrong. Finally, further unpredictability could still emerge from Brexit, and other member countries threatening to leave the EU.