Europe has historically grown at a slower rate to other economies, lagging behind the MSCI World index by 31 percentage points over the past five years, but things could be looking up for the region.
In the past year, the European market has improved. Indeed, over 12 months it is less than 1 percentage point behind the global benchmark.
But it could be in line for even better returns in the coming years as the European Central Bank’s reluctancy to raise interest rates in 2022 may be a positive sign for equity investors.
This loos monetary policy is in stark contrast to the US Federal Reserve and UK’s Bank of England, which have already raised rates, or signposted that they will – something that has caused markets to plummet so far this year.
This suggests the European market could run hot in the near future, giving investors the chance to buy in now before it shifts into a higher gear.
Here, Trustnet looks at the portfolios run by FE fundinfo Alpha Managers that have consistently delivered high, long-term returns, yet still have less than £500m in assets under management (AUM).
Previously in this series, we have looked at top-performing funds in the Asia and Global sectors that investors may have overlooked because of their size.
Comgest Growth Europe Ex UK
The Comgest Growth Europe Ex UK fund has found success over the past five years through quality-growth investments, delivering total returns of 93.6%.
Sam Buckingham, investment analyst at Kingswood said its style of investing “leads to above-average returns over the long-term”.
“Over the long term, we believe this quality-growth approach will perform well through economic cycles, as Comgest has successfully demonstrated thus far.”
Total return of fund over five years
Source: FE Analytics
One area that Alpha Managers Alistair Wittet, Arnaud Cosserat, Franz Weis have focused the £293.5m portfolio on is healthcare, which makes up 24.4% of the overall weighting.
The MSCI Europe/Health Care index is up 35.7% over the past three years, as the need for improved medical services throughout the pandemic has accelerated growth.
Although this has been a boost for much of the year, the Comgest portfolio has slipped back recently after valuations dopped across the board in January.
In the past year, the Comgest portfolio peaked at 30% in November but is now up 11% over 12 months – above the IA Europe Excluding UK sector and MSCI Europe benchmark.
Threadneedle Pan European Focus
The £79.4m Threadneedle Pan European Focus fund is managed by Frederic Jeanmaire freedom, who looks for undervalued assets with strong growth prospects.
In the past five years, the fund is up almost 80% and has outperformed the MSCI Europe benchmark by 37.9 percentage points.
Total return of fund over past five years
Source: FE Analytics
Andy O’Shea, investment director and head of fund solutions at Pharon said that the fund’s outperformance of both the sector and benchmark “has not come at the expense of volatility”.
He added: “In fact over the past 3 and 5 years the fund has demonstrated lower levels of absolute volatility and outright maximum drawdowns compared to its index.”
All holdings in energy and utility assets were recently removed from the portfolio after underperforming in the latter half of 2021. Instead, the fund is now overweight in financials and materials, making up 21.5% and 14.6% of totals holdings respectively.
O’Shea said that the holdings in these sectors should hold up well if the European Central bank follows the path of the other central banks around the world and raises interest rates.
“This should provide a lot of potential upside as we transition from quantitative easing to quantitative tightening as inflation bites and subsequent interest rate rises become necessary.”
Allianz Continental European
The £346m Allianz Continental European fund is a large-cap fund that focuses on three main areas: quality, structural growth and valuations.
The fund was launched 2002 and current manger, Thorsten Winkelmann joined the portfolio in 2010 before co-leader Marcus Morris-Eyton came onboard in 2017.
During Winklemann’s time as manager, the portfolio is up 227.7%, beating the IA Europe Excluding UK sector by 72.3 percentage points.
Total return of fund since Winklemann joined
Source: FE Analytics
Like the Comgest fund above, its tilt towards quality-growth stocks has boosted performance in recent years, but has hampered the fund in the past few months.
Indeed, the portfolio lost most of the progress made in 2021 after dropping 13 percentage points last month, leaving it on an overall loss of 0.4% over the past year.
| Fund | Sector | Fund size | Fund managers (s) | OCF |
| Allianz Continental European | IA Europe Excluding UK | £346m | Thorsten Winkelmann, Marcus Morris-Eyton | 1.57% |
| Comgest Growth Europe ex UK | IA Europe Excluding UK | £294m | Arnaud Cosserat, Alistair Wittet, Franz Weis | 0.93% |
| Threadneedle Pan European Focus | IA Europe Including UK | £79m | Frederic Jeanmaire | 1.09% |