The likes of Jupiter European and Threadneedle European Select have managed to protect investors during the worst market falls of the past 16 years, FE data shows, while generating some of the best total returns since the financial crisis.
European equities have been thrust into the spotlight once again after the UK’s decision to leave the European Union caused investors to fret about the future health of the economy. Added to this is the potential for further political risk on the continent, as calls have emerged in several countries for their own remain/leave referenda.
Against this backdrop, those investing in Europe may be paying more attention to capital preservation and seeking out funds that have a track record of holding up when the market falls. To help identify some of these, we have looked across the IA Europe ex UK sector to see which members have been the best performers in difficult market conditions.
We looked at four periods since 2000: 12 September 2000 to 10 February 2003, when the bursting of the tech bubble led the MSCI Europe ex UK index to drop 52.35 per cent; 31 October 2007 to 19 February 2009, when the global financial crisis caused a 37.3 per cent fall; 6 May 2011 to 30 September 2011, when it was down 24.01 per cent thanks to the eurozone debt crisis; and 7 April 2015 to 26 January 2016, when the index fell 11.76 per cent because of fears over global growth.
It must be noted that the IA Europe ex UK sector is, broadly speaking, a good place to find strong active managers. The average member of the peer group has outperformed the index in each of the above periods and made a higher return since the turn of the century.
Performance of sector vs index since 2000
Source: FE Analytics
Obviously, this is the performance of the average fund and not every member of the sector will have been able to avoid the worst of the market’s falls.
However, after filtering the 105 funds in the peer group to find those that have beaten the MSCI Europe ex UK index in each of the above periods as well as being top quartile for total returns over the eight years of the past market cycle, we were left with five funds.
Jupiter European, which has been headed by FE Alpha Manager Alexander Darwall since the start of 2001, has made the highest return over the last eight years after rising 147.91 per cent. The MSCI Europe ex UK index is up 38.97 per cent over this time frame while the average IA Europe ex UK fund made 51.86 per cent.
Performance of fund vs sector and index in market corrections
Source: FE Analytics
When building the £3.7bn fund’s portfolio, Darwall focuses on finding European companies with long-term growth potential regardless of the economic backdrop. These tend to be those that operate globally and have a differentiated product that offers a degree of pricing power.
Square Mile, which gives the fund its top ‘AAA’ rating, said: “Mr Darwall runs a differentiated fund which focuses on longterm growth opportunities. Intuitively this seems to be an attractive approach but others have struggled to apply the process with sufficient rigour to ensure success.”
Jupiter European has a clean ongoing charges figure of 1.03 per cent. It also a member of the FE Invest Approved List and holds five FE Crowns.
Next up is David Dudding’s £3.2bn Threadneedle European Select fund. Dudding is also an FE Alpha Manager and his fund has a place on the FE Invest Approved List. The fund’s 123.41 per cent total return over eight years puts it a little way behind Jupiter European but still represents significant outperformance of the MSCI Europe ex UK.
Performance of fund vs sector and index in market corrections
Source: FE Analytics
Dudding also has a bias towards quality business with a competitive advantage. This leads to more towards sectors where companies possess unique products, such as consumer goods and healthcare, rather than more generic areas like oil & gas.
The FE Research team said: “Dudding has stuck to his process and has a simple-to-understand approach that has now proven itself over the course of a market cycle. It is good to see that the team adds value above and beyond what would be expected from a similar ‘quality growth’ style of fund.”
Threadneedle European Select has a 0.83 per cent clean OCF.
GAM Star Continental European Equity, managed by Niall Gallagher, has made 89.14 per cent over the past eight years and beaten the index in each of the four corrections examined. It holds five FE Crowns.
Performance of fund vs sector and index in market corrections
Source: FE Analytics
Gallagher uses a fundamental, bottom-up approach to investing and he runs a relatively concentrated portfolio of between 30 and 45 stocks. The manager attempts to add value by knowing his stocks “in more detail” than the rest of the marketplace and emphasises the importance of research in his investment process.
He is overweight the consumer discretionary and information technology sectors, but has less than half of the index’s weighting to financials. The largest holding is Total, followed by Henkel and Ryanair.
GAM Star Continental European Equity has a clean OCF of 1.07 per cent.
Aviva Investors European Equity is the next fund to have avoided the worst of the European market’s falls. It has also made 76.67 per cent over the last eight years but this was made under Mark Denham, who left the group in June.
Performance of fund vs sector and index in market corrections
Source: FE Analytics
Edward Kevis has since taken over the £155.6m fund but has only been in charge of the portfolio for a matter of weeks.
Aviva Investors European Equity has an 0.85 per cent clean OCF.
The final fund on the list is Chris Hiorns’ £63.3m EdenTree Amity European fund, which is up 73.85 per cent over the past eight years. The fund is managed according to sustainable and socially responsible principles while placing emphasis on downside protection.
Performance of fund vs sector and index in market corrections
Source: FE Analytics
Its bottom-up approach looks for attributes such as sound financials, growth prospects, good management and the potential for strong cash flow generation. Hiorns also has a contrarian tilt, which can lead him to out-of-favour areas and result in a portfolio that looks different to the index.
EdenTree Amity European has a clean OCF of 0.82 per cent.
