Markets are poised ahead of the today’s meeting of the European Central Bank's (ECB) governing council where ECB president Mario Draghi (pictured) is expected to further increase quantitative easing. 
Draghi sent European equity markets rallying in January 2015 when he last unveiled an expansion of QE, but markets stumbled several months later in tandem with the pervasive weakness in global stocks in the latter half of 2015.
At the last ECB meeting in December, investors were further left underwhelmed despite the bank pushing its deposit rate into negative territory and an extension of the timeline of the existing QE stimulus programme until May 2017.
Of course, since this event the outlook for global growth has worsened materially and the European markets have been dogged by concerns over the health of the banking sector.
“Should there be a major step-up in the scale of QE, this would likely be a crowd pleaser for the equity markets,” says Tilney Bestinvest’s Jason Hollands.
However, too forceful a push into negative interest rate territory would exacerbate concerns about the impact on bank profits, he adds.
In this article, Hollands tips five portfolios for five different outcomes of the today’s meeting for exposure to European equity markets.
Jupiter European – ‘for a high conviction rally’
The £3.6bn Jupiter European fund is one of the largest in the IA Europe ex UK sector. Headed by FE Alpha Manager Alexander Darwall since 2001, the fund has returned 282.1 per over that time – more than three times the return of the average fund in the sector and the FTSE World Europe ex UK index.
Performance of fund, sector and index under Darwall
Source: FE Analytics
Hollands said: “This is a concentrated portfolio of 38 mostly large high quality growth companies that the manager, Alexander Darwall, believes will prosper throughout the economic cycle because of their strong competitive positioning.”
“Companies targeted have proven management teams, strong earnings visibility and excellent corporate governance. The portfolio has little in common with the benchmark index.”
Top holdings include Danish healthcare firm Novo Nordisk, data provider RELX, payment processing firm Wirecard and agricultural feed producer Sygenta. No banks feature in the top 10 holdings.
The fund is also top decile for total return over one, three, five and 10-year periods. It struggled somewhat in 2013 but thanks to a strong performance last year it is still the fourth best of 91 funds in the sector over three years.
It has a clean ongoing charges figure (OCF) of 1.03 per cent.
FP Argonaut Absolute Return - ‘for choppy markets’
The long/short mandate of FE Alpha Manager Barry Norris has meant a return of 81.33 per cent since the fund’s launch in 2009, which is nearly 10 percentage points shy of the index, but delivered with substantially less volatility.
Performance of fund and index since launch
Source: FE Analytics
The fund has also done well compared to the index at protecting against the downside and is ahead since markets sold off in April 2015. This is nothing short of an “exceptional track record”, says Hollands.
“This is their flagship fund, which invests across Europe but as well as investing in shares the manager believes will perform well, it also seeks to make money from those the team believes will perform poorly through taking ‘short’ positions,” he said.
“At the heart of the Argonaut process is the search for companies with the potential to deliver ‘earnings surprises’, where the consensus market view proves wrong.”
“Examples of ‘long’ positions include budget airline Ryanair and Danish jewellery firm Pandora. The fund has also had a major disclosed ‘short’ position in Standard Chartered which has been under pressure from its high exposure to Asia.”
FP Argonaut Absolute Return has a clean OCF of 0.94 per cent.
Threadneedle European Select – ‘for core exposure’
Since FE Alpha Manager David Dudding took over this £3bn fund in July 2008 it has made a first-decile total return of 108.55 per cent, almost triple the gain of the FTSE World Europe ex UK index and more than double the return of the IA Europe Ex UK sector. This is the fifth best performance of the 75 funds with a comparable track record.
Performance of fund vs sector and index under Dudding
Source: FE Analytics
Hollands says the fund is his top choice for core European equity exposure: “The focus is on high quality growth companies, with stable earnings and strong brands that provide a barrier to competition.”
“The approach of manager Dave Dudding is a ‘buy and hold’ one and the fund has historically been very defensive in tougher markets.”
“Top holdings include French cosmetics and personal care group L'Oreal, Compagnie Financiere Richemont [owners of luxury brands such as Mont Blanc and Cartier], and brewing giant Anheuser-Busch InBev. There are no banks in the top 10 holdings.”
Threadneedle European Select has a clean OCF of 1.06 per cent.
Henderson European Focus IT - ‘to take advantage of an IT structure’
Investors with at least a medium-term view should not be deterred from this closed ended vehicle due to its movement to a slight premium to net asset value (NAV) of 0.94 per cent.
“In recent days, a number of leading European investment trusts have return to premiums, as investors grow more optimistic about the next moves from the ECB,” Hollands said.
This is very much the case with this trust, which has been managed by FE Alpha Manager Jon Bennett – who is also head of European equities at Henderson – since 2010.
“Bennett takes an unconstrained approach to investing, holding 54 shares in the portfolio, which represent the team's ‘best ideas’. Healthcare continues to be a major theme at 20.6 per cent of the portfolio, with top 10 positions in Roche, Novartis, Bayer and Novo Nordisk.”
The trust is top quartile over three and five years and since Bennett took over in 2010. Since this date the trust is up 95.66 compared to an IT Europe sector average of 73.86 per cent. The index gained 37.58 per cent over the same period.
Performance of trust vs sector and index under Bennett
Source: FE Analytics
The trust has an OCF of 0.89 per cent and also charges a performance fee. It is 8 per cent geared.
Baring Europe Select – ‘for investing in medium sized and smaller companies’
Last up, Hollands tips this £1.4bn fund managed by Nicholas Williams. It has outperformed its sector over three years, returning 40.7 per cent to investors compared to 27.39 per cent sector average.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
“While the funds above all primarily invest in large, European listed companies, Baring Europe Select invests in mid-caps and smaller companies that are typically more exposed to the domestic economies of Europe,” Hollands said.
Mid and small-caps tend to outperform in a recovery due to their higher beta and perception of greater risk, and Williams has beaten his benchmark – the Euromoney Smaller Europe (Ex UK) index – over one three, five and 10 years.
“The approach is a highly diversified one with 107 holdings, with no single stock accounting currently accounting for more than 1.6 per cent of the portfolio,” Hollands said.
The fund has a clean OCF of 1.06 per cent
