Fears over the possible breakup of the single currency area and ongoing debt and political turmoil, particularly from peripheral countries such as Greece, Spain and Italy, have made Europe a difficult and unnerving place to be for investors since the financial crisis.
Despite the fact the worst seems to be over, however, and even though the catastrophic year of 2008 has fallen out of the five-year performance figures, only two funds in the entire sector have outperformed their peers in each of the last five calendar years.
The four crown-rated Baillie Gifford European fund, managed by Thomas Coutts, Paul Faulkner and Stephen Paice, achieved the highest and most consistent returns over the last five years.
It is closely followed by the four crown-rated Schroder European fund which, while failing to shoot the lights out in any single calendar year, has been remarkably consistent.
Source: FE Analytics
Both funds also beat the sector average in 2008, making it six straight years of outperformance.
The Baillie Gifford fund is a top-quartile performer in the sector in three of the last five calendar years, while 2012 was the only year the Schroders fund managed to reach the top quartile.
The £104m Baillie Gifford fund has made 108.69 per cent over the last five years compared with 71.17 per cent from the IMA Europe ex UK sector. Its MSCI Europe ex UK index gained just 63.11 per cent over the period.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The Schroders fund, though still top quartile over five years, made 95.5 per cent.
The funds are not top of the list when it comes to risk-adjusted returns over the last five years. Baillie Gifford European has the sixth-highest sharpe ratio of any fund in the sector while Schroder European finishes in 14th place.
The tiny £63.3m Invesco Perpetual European Opportunities fund, managed by Adrian Bignell, achieved the highest risk-adjusted returns over the last five years.
Our recent series of articles on the best risk-adjusted funds showed such funds also tend to be among the best performers in absolute terms.
However, for investors who rely on returns for income or capital growth toward retirement, simply not losing money can make a big difference, which is where the Baillie Gifford and Schroders portfolios come in.
While both funds lost money in 2011, they protected against the downside better than their peers; this has had a significant impact on long-term results.
Baillie Gifford European is invested in a number of blue chip European names such as Swiss food and drink company Nestle, Swiss pharmaceutical giant Roche and Danish brewer Carlsberg, but it also holds a number of lesser-known names in its top-10.
The fund has some exposure to the European financial sector through Sweden's Svenska Handelsbanken and Investor AB. It also has holdings in Belgian industrial holding company Groupe Bruxelles Lambert.
The Schroders fund favours different blue chip names, with Roche the only stock it has in common with Baillie Gifford European in its top-10.
Schroder European also holds Swiss pharmacaeutical Novartis. For its financial exposure, the fund is invested in French banks BNP Paribas and Societe Generale, as well as Dutch financial services corporation ING Bank.
The Baillie Gifford fund requires a minimum investment of £1,000 and has ongoing charges of 1.61 per cent. The Schroders portfolio is an institutional fund, though it is available via select platforms.
It is worth noting that some of the big names in the sector – FE Alpha Manager Alexander Darwall's four crown-rated Jupiter European fund and FE Alpha Manager David Dudding's five crown-rated Threadneedle European Select fund – only missed out on the accolade by a hair’s breadth in 2013.
These have been among the best performers over the past five years.
The Jupiter fund, for example, delivered top-quartile returns in four out of the last five calendar years, only missing out on a place on the most consistent performers list by just over 1 percentage point.
The fund is the fourth-best performer in the sector over the last five years, with returns of 124.32 per cent. This puts it just behind Invesco Perpetual European Opportunities, FF&P European All Cap Equity and BlackRock European Dynamic.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The Threadneedle fund was a top-quartile performer in 2010 and 2011 and a second-quartile performer in 2009 and 2012. Its returns of 22.15 per cent in 2013 put it 4 percentage points behind the sector average.
