The fund manager, who oversees assets worth nearly $2 billion, told CNBC that European defense bulls could soon begin to cool down as they have reached “extreme” levels. Speaking to CNBC’s “early European edition” on Monday, London-based Stephen Yewoo said he managed the £1.4 billion ($1.9 billion) Blue Whale Growth Fund, which reduced exposure to European defence spaces. Regional defense stocks have seen an extraordinary increase, supported by promises from the European Union, regional governments and the NATO military alliance to significantly increase defense spending. The Stoxx Europe Aerospace and Defense Index has been receiving over 55% since the start of the year. Describing the sector as “very interesting,” Yiu explained about 18 months ago that his fund had begun a European defence position, including allocating capital to Italian defence champion Leonardo. However, he also suggested that the epic growth rate for European defence stocks may have peaked. “I think the issue with European defense was very extreme, despite our continued preference for businesses and sectors,” Yiu told CNBC. Leonardo, the manufacturer of military aircraft held by the Blue Whale Growth Fund, has earned more than 86% so far this year. French maritime systems manufacturer Exail Technologies has grown almost 500% since the start of the year, but German defense giants Renk, Hensoldt and Rheinmetall all have tripled in value. ldo-it r3nk-ff, hag-de, rhm-de, exa-fr ytd line European defence stock YIU funds have reduced their holdings in recent months while still holding Leonardo shares. He advised investors to consider the assessment in terms of outperformance potential, taking into account the time it takes for a European hit financial package to reach a company’s revenue. Yiu argued that it would likely take “a few years” to see the direct impact. “Compared to the beginning of the year [with] Leonardo, you’ve seen it in our top 10 holdings. [because] He also warned that the entry point for European defence stocks “probably not today.” “The question is, just because it can still contribute to some outperformance, are you still happy to keep it up?” he added.
