Which European funds have fared best since the financial crisis?
In the next article of the series, FE Trustnet takes an in-depth look at the best-performing funds in the IMA Europe ex UK sector.
Most of the best performing European funds over the past five years have been those prepared to take on more risk, according to data from FE Analytics.
Developed equity markets have rallied strongly since the financial crisis, and generally funds that have been prepared to take on more risk have prospered. However, the culmination of the eurozone crisis in 2011 hit those in the IMA Europe ex UK sector harder than any other, and as a result being able to protect against the downside has been more important.
Top-performing funds such as FF&P European All Cap Equity, Threadneedle European Select
and Jupiter European
have a significantly lower annualised volatility than both their sector average and the MSCI Europe ex UK index.
All protected much better against the downside in 2011, including the Threadneedle portfolio, which lost just 5.41 per cent – 10 percentage points less than the sector.
Risk/return of IMA Europe ex UK sector over 5yrs
Source: FE Analytics
However, overall the majority of top-performers have been those prepared to take on more risk. FE data shows that 12 of the 20 best performing funds have a high annualised volatility than the MSCI Europe ex UK index – the natural benchmark for the sector.
Invesco Perpetual European Opportunities
was number one overall, with returns in excess of 250 per cent. Adrian Bignell’s
fund has also been one of the most volatile in the sector over the period. Other strong performers in this bracket include FE Alpha Manager Alister Hibbert’s BlackRock European Dynamic
The benefit of taking on more risk has been starker over the past year, with funds investing in more volatile peripheral countries such as Italy and Spain doing particularly well.
Of the 10 best performing funds in the IMA Europe ex UK sector over the past 12 months nine have been more volatile than the MSCI index.
The best performer over this period was the £241m Schroder European Alpha Income
fund headed up by James Sym
. It currently counts Spain as its largest regional overweight.
Risk/return of IMA Europe ex UK funds over 1yr
Source: FE Analytics
Argonaut’s Greg Bennett
thinks the European recovery is still two to three years behind that in the US and the UK, and anticipates further upside from equity markets as a result.
He thinks the most concentrated aspect of the European recovery over the next 12 months will be seen in periphery countries; namely Ireland, Portugal, Spain, Italy, and Greece. As a result, he thinks those prepared to take on more risk will continue to be rewarded.
“They are all expecting a positive GDP figure this year for the first time since the eurozone crisis in 2011,” he said.
Data from FE Analytics shows since the beginning of the financial crisis the MSCI Europe ex UK has performed worse than the US and UK markets. It has returned 43.98 per cent since the collapse of Lehmans in mid-September 2008, compared to 85.35 per cent from the S&P 500 and 54.54 per cent from the FTSE 100.
Bennett co-manages the five-crown rated FP Argonaut European Alpha
fund with Barry Norris
, which increased its exposure to peripheral Europe throughout 2013. FE data shows it is a top-quartile performer over a one and three year period, but doesn’t yet have a five year track record.
Andrew Parry, chief executive officer at Hermes, agrees that European funds can continue to deliver strong returns this year, but thinks the easy money has already been made.
“In 2014, stock picking will be hugely more important than it was in the previous year,” he said.
“Whereas 2013 was the year when everything in Europe re-rated and investors flooded back in very indiscriminately, this year it’s going to be much more about being discriminate and making sure you choose the right companies.”