TM Crux European Special Situations has been placed under formal review by fund shop interactive investor (ii) after a string of poor returns, but fund pickers are mixed on whether to stick with it or jump ship.
The £892.6m fund has been a consistent performer over the past decade, returning 223% to investors, around 14 percentage points ahead of the IA Europe ex UK sector average and 32.5 percentage points above the MSCI Europe ex UK index.
However, the fund has been under pressure more recently, falling to the bottom quartile among its sector peers over one, three and five years.
The news came as ii also put SDL UK Buffettology ‘under review’ on grounds that the fund had become too large and had too much risk tied in with manager Keith Ashworth-Lord.
Dzmitry Lipski, head of funds research at ii, said: “Crux European Special Situations has been put under formal review due to performance concerns.”
Source: FE Analytics
However, independent market commentator Adrian Lowcock said ii and investors should keep faith with the fund, which is managed by FE fundinfo Alpha Manager Richard Pease and James Milne.
The high-conviction portfolio of 48 holdings invests in quality businesses, preferring those with low debt and attractive valuations.
“This approach requires a long-term mindset and pays no attention to the macroeconomic and political landscape,” Lowcock said.
As such, the managers tend to look solely at the potential of the companies they invest in rather than the short-term trends within the market.
“This means the fund has had periods of underperformance relative to the market, with the most recent stretching back five years,” said Lowcock.
“For such a high-conviction fund and focused stockpicking style, this shouldn’t be a surprise, but Pease’s relentless focus on understanding the businesses he invests in means I retain confidence in his ability longer term and believe investors need to be patient for his investments to perform.”
Jason Hollands agreed. The managing director of corporate affairs at Tilney Investment Management said his firm recommended the TM Crux European Special Situations fund on its own best-buy list and that investors should stick with it, at least for now.
“Pease has managed the fund since inception and has one of the longest-standing track records in the industry,” he said.
Recent performance concerns are valid, however. In particular the fund lagged the index in 2018 – when markets sold off aggressively at the height of the US/China trade war – and during 2020 when Covid dominated.
It has struggled as its “growth at a reasonable price” way of investing has dropped out of favour in recent years compared with more expensive out-and-out growth stocks which have dominated, while it has lagged the recovery rally in highly cyclical sectors since last Autumn.
“We’re now moving into a somewhat different market environment, where inflation is above trend and economic growth is moderating after the initial sharp rebound. I would therefore hold on and see if the manager can return to his winning ways,” Hollands said.
However, Ben Yearsley, Fairview Consulting director, said he was in the process of selling the fund in his portfolios.
“I’ve always admired Pease as a manager and that hasn’t changed, but I wanted to change the emphasis of the European holdings within portfolios. So although I am folding, using your terminology, it is more to do with a change of style rather than disappointment with Crux,” he said.
He is switching to Martin Currie European Unconstrained, managed by Alpha Manager Zehrid Osmani and Amanda Whitecross, which is a sustainable quality growth fund with a long-term outlook, investing in compounding returners.
Total return of fund vs sector and MSCI index since manager start
Source: FE Analytics
Osmani and Whitecross took charge of the fund towards the end of 2018 and have made investors 102.3% since then, the sixth-best figure in the IA Europe ex UK sector, and more than double the gains of the MSCI Europe ex UK benchmark index.
“Their simple philosophy is that markets underestimate the long-term growth potential of stocks and therefore underprice or tire of them too soon. The team tries to exploit these inefficiencies,” he said.
| Fund | Sector | Fund size | Manager name(s) | Yield | OCF |
| Crux European Special Situations | IA Europe ex UK | £892.6m | Richard Pease, James Milne | 0.6% | 0.88% |
| Martin Currie European Unconstrained | IA Europe ex UK | £123.3m | Zehrid Osmani, Amanda Whitecross | 0.2% | 0.97% |