As well as having to manoeuvre their funds through the Lehmans crash and its devastating aftermath, managers operating in the IMA Europe ex UK sector have also had to contend with the eurozone crisis, which culminated in the acute summer sell-off in 2011. A Japanese earthquake, the Arab Spring and most recently the slow-down in emerging markets have not helped matters.
In spite of these various crises, a number of European managers have delivered stellar performance since the autumn of 2008; some have even doubled investors’ money.
With the Lehmans crash – arguably the most important single event for markets so far in the 21st Century – soon to be wiped off funds’ five-year track records, we thought it would be a good idea to look at which managers have coped best over the said period.
Perhaps unsurprisingly, it has been those that have coped best in the downturns that have the best cumulative returns over the period: if someone loses 50 per cent in a calendar year, they need to make a 100 per cent return to break even, and so in times of crises durability is key.
Of the 10 best-performing funds in the IMA Europe ex UK and IMA European Smaller Companies sectors over five years, eight have been less volatile than the MSCI World ex UK index over the period and all but the Invesco Perpetual European Smaller Companies fund have a lower max drawdown.
The best performer overall is the little-known FF&P European All Cap Equity fund, which has managed to return 126.12 per cent over the last five years. As its name suggests, the five crown-rated fund is a multi-cap portfolio that invests across the small, mid and large cap markets.
Top-10 best-performing European funds over 5yrs
| Name | 5yr |
|---|---|
| FF&P - European All Cap Equity | 126.12 |
| MFS Meridian - European Smaller Companies | 101.38 |
| BlackRock - European Dynamic |
100.96 |
| Threadneedle - Pan European Smaller Companies | 93.14 |
| Threadneedle - European Smaller Companies | 92.88 |
| Baring - Europe Select | 91.92 |
| Jupiter - European | 89.22 |
| Threadneedle - European Select |
84.12 |
| Invesco Perp - European Opportunities | 83.89 |
| Ignis - European Smaller Companies | 82.66 |
| IMA European Smaller Companies | 71.35 |
| IMA Europe Excluding UK | 39.27 |
| MSCI EUROPE ex UK | 30.71 |
Source: FE Analytics
The £32m portfolio requires a hefty minimum investment and is not available on any of the major platforms.
Two other funds have also doubled investors’ money – BlackRock European Dynamic and MFS Meridian European Smaller Companies. The former is one of the few that has an above-average volatility over five years. It is set to close to new money later this year. The Meridian fund is very much open though, and was recently added to the FE Select 100.
It is run by FE Alpha Manager Peter Fruzzetti – a bottom-up manager with a very low turnover.
He targets durable companies with strong and sustainable earnings growth, which has helped him control volatility very effectively: our data shows that the fund has an annualised volatility of 19.22 per cent over five years, compared with 23.07 per cent from the MSCI Europe ex UK index and 22.36 per cent from the IMA European Smaller Companies sector average.
Fruzzetti also did much better during the 2008 and 2011 sell-offs.
Performance of funds, sector and index over 5yrs
Source: FE Analytics
Threadneedle was the standout group in the study, with no less than three funds making it into the top-10.
Other strong performers over the period include Alexander Darwall’s Jupiter European fund and David Dudding’s Threadneedle European Select fund, which have benefited from having a defensive growth portfolio of stocks in recent years.
Fellow FE Alpha Manager Barry Norris recently warned investors that funds such as this could struggle if the European recovery continues to gather momentum. Anyone who shares his concerns may be better off in a fund with the flexibility to hold both growth and value stocks.
When looking at Sharpe ratio – one of the most popular measures of risk-adjusted returns – the picture remains almost identical, which is hardly surprisingly given that most of the top-performing European funds have been less volatile than their sector and benchmark.
This ratio calculates a fund's return relative to a notional risk-free investment – in this case, cash. The difference in returns is then divided by the fund's volatility.
Only one top-10 performer on a total return basis falls out of the elite group when looking at Sharpe ratio. Unsurprisingly, Invesco Perpetual European Smaller Companies was the fund that made way, although it only just missed out to Lazard European Smaller Companies.
Top-10 European funds for Sharpe ratio over 3yrs
| Name | Sharpe |
|---|---|
| FF&P - European All Cap Equity | 0.73 |
| MFS Meridian - European Smaller Companies | 0.6 |
| Threadneedle - Pan European Smaller Companies |
0.52 |
| Threadneedle - European Smaller Companies | 0.5 |
| Threadneedle - European Select | 0.46 |
| BlackRock - European Dynamic | 0.45 |
| Jupiter - European | 0.44 |
| Baring - Europe Select | 0.43 |
| Ignis - European Smaller Companies | 0.38 |
| Lazard - European Smaller Companies | 0.36 |
| IMA European Smaller Companies | 0.35 |
| IMA Europe Excluding UK | 0.12 |
| MSCI EUROPE ex UK | 0.05 |
Source: FE Analytics
FF&P European All Cap Equity retains its place at number-one, with a score of 0.73. The only significant mover in the top-10 was BlackRock European Dynamic, which fell three places because of its above-average volatility score.
Looking at the investment trust universe, one vehicle has blown the competition away – Darwall’s Jupiter European Opportunities trust. It has significantly beaten its sector, benchmark and open-ended equivalent over five years, with returns of more than 150 per cent. It is the only trust of its kind that has doubled investors’ money over the period.
Performance of trust, fund, sector and index over 5yrs
Source: FE Analytics
Lower charges, the use of gearing and a closing discount have all contributed to the trust’s superior performance, as has Darwall’s ability to invest in the UK. FTSE stocks currently have a 30 per cent weighting in his portfolio.
While Darwall has the same focus on defensive growth names in his trust as he does in his fund, the use of gearing has contributed to a higher volatility score compared with his benchmark. The trust did protect more effectively against the downside in 2011, however.
Other top-performing European trusts include the Henderson Euro Trust, the European Assets Trust and the BlackRock Greater Europe trust, which have all returned around 80 per cent.
Given that peripheral Europe has been in the news for all the wrong reasons over the last five years, it is unsurprising that emerging European trusts have had a tough time. BlackRock Emerging Europe, for example, has sustained a slight loss over the period.
In the previous article in the series, FE Trustnet looked at multi-asset funds that have beaten the crisis.
