The Three Bridges Europe Fund posted a negative return of -1.8% net in January, affected, as most equity funds were, by the slide in emerging market stocks and currencies as well as concerns over the Fed tapering, according to a letter to investors reviewed by ValueWalk.

The fund management is not unduly worried, saying in its January performance review that “these periods of heightened volatility are painful, but typically short lived and ultimately create an opportunity for investors, as we are already seeing as this letter is being written, with a healthy market recovery by mid-February.”

Emerging markets and Europe

Interestingly, the letter points out that the global markets have apparently over-reacted to problems in a few specific emerging markets that were, in fact, long festering.

“These latest macro issues have all originated outside the Eurozone and have thus far had little impact on the region’s steady recovery,” observes the fund management.

The unspoken, but positive fallouts of slowing EM growth for developed markets are lower commodity prices and benign inflationary pressures.

“For too long some investors equated high GDP growth rates in emerging economies with attractive equity investments, and recent events in emerging markets are providing a healthy reminder that sustainable stock price appreciation requires other things (good cash flows, expanding profits, rational capital allocation, strong corporate governance, and more),” says the letter, pointing out a valuable investing home truth.

Fund performance

The Europe focused long/short fund has AUM of $565M with a long/short ratio of 1.8%. The fund returned 25.9% in 2013 and YTD is down 1.8%.

It has outperformed the benchmark MSCI Europe index by a handsome margin since 2009.

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Top long and short positions

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Europe a stock-picker’s paradise

The fund is bullish on 2014 considering its abilities in bottom-up fundamental investing.

“The corporate environment in Europe remains positive, and the outlook for profits growth this year continues to improve. We remain constructive on the stock-picking opportunity in Europe and the Fund’s exposures and positioning reflect this view.”