In the build-up to the UK general election, many investors turned to European funds to avoid the noise and uncertainty of their home turf and benefit from monetary easing on the continent.
Investors have been won over by the market’s seemingly cheap valuations as well as the European Central Bank’s launch of a €1.1trn quantitative easing programme.
With this in mind and in the next of our series on top-performing but volatile funds, FE Trustnet focuses on European investment vehicles that are perhaps better suited to strong-stomached investors.
Scottish Widows HIFML European Strategic
Out of 109 funds in the IA Europe ex UK sector, Scottish Widows HIFML European Strategic has the eighth highest alpha score over five years, which measures the returns the fund has been able to add over its benchmark.
The five FE Crown-rated fund, which is just £25.2m in size, has also achieved top-decile annualised returns of 12.94 per cent over the same time period, as well as a total return of 93.65 per cent, outperforming its sector average by 37.3 percentage points.
Performance of fund vs sector over 5yrs
Source: FE Analytics
However, the fund also has bottom-decile annualised volatility of 17.5 per cent over the same time frame.
Managed by Old Mutual Asset Management’s quantitative strategies team, the fund has an approximate 60 per cent weighting in consumer products, financials and healthcare, allocating around 20 per cent to each sector.
Scottish Widows HIFML European Strategic also has an 11.3 per cent weighting in telecom, media & technology, 10.8 per cent in basic materials and 9.6 per cent in industrials.
The fund has a clean ongoing charges figure (OCF) of 1.06 per cent and yields 1.6 per cent.
GLG Continental Europe has slightly lower annualised volatility than Scottish Widows HIFML European Strategic at 17.43 per cent.
However, it also has a top-decile alpha ratio of 3.55 and boasts top-decile annualised returns of 12.73 per cent over the past five years.
It’s important to note that, while the fund was first launched in 1998 and has appeared high up in the list for both its alpha and volatility, it has only been managed by European equity veteran Rory Powe since October 2014.
Data since Powe’s took over the portfolio shows that it has since achieved a top-quartile volatility while also remaining top-quartile for both its alpha and its annualised returns.
The five FE Crown-rated fund has also outperformed both its peer average and benchmark within this time period by more than double, providing total returns of 25.55 per cent.
Performance of fund vs sector and index over manager tenure
Source: FE Analytics
GLG Continental Europe holds its largest geographic weighting in Denmark, which makes up 16.24 per cent of the portfolio. It also allocates 11.44 per cent to Switzerland, 11.35 per cent to Germany, 11.05 per cent to Italy and 8.46 per cent to France.
Its biggest overweight is in retailing, which stands at 9.99 per cent. The fund is also overweight consumer durables & apparel, healthcare equipment & services, software & services and transportation.
The portfolio is currently underweight banks, insurance, food, beverage & tobacco, telecoms and energy.
GLG Continental Europe has a clean OCF of 1.05 per cent and yields 1.09 per cent.
Invesco Perpetual European Opportunities 
Next on the list is Adrian Bignell’s Invesco Perpetual European Opportunities fund, which has a top-quartile alpha ratio of 2.18.
The fund also has a high tracking error rating of 6.74, showing that the manager isn’t afraid to step away from the benchmark.
However, this is likely to be a contributing factor to Invesco Perpetual European Opportunities’ bottom-quartile volatility of 18.34 per cent, which is higher than either of the aforementioned funds.
This volatility certainly hasn’t weakened the fund’s performance, however, as it has achieved top-quartile annualised returns of 2.53 per cent and total returns of 79.71 per cent over five years, beating its peer average by 23.36 percentage points.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Earlier this year, Bignell increased the fund’s exposure to the telecommunications sector, which accounts for 13.16 per cent of the fund. He did this through buying a holding in Telecom Italia, as the manager believes that the improving macro environment in Italy as well as the potential consolidation of the domestic industry there has boosted the company’s prospects.
He has also eased the fund’s underweight in consumer goods, which now makes up more than 10 per cent of the portfolio.
Bignell said: “Our strategy is essentially driven by rigorous fundamental analysis and unconstrained stock selection, with the aim of identifying attractive investment ideas in continental Europe.”
“We seek companies which we believe can deliver strong returns in the longer term, whether due to an effective business model, dominant market position or a successful restructuring story.”
Invesco Perpetual European Opportunities has a clean OCF of 0.95 per cent and yields 0.83 per cent.
The Schroder European fund has the least amount of volatility out of the five funds, a third-quartile 16.91 per cent. However, it also has a bottom-quartile maximum loss, which measures the longest-running consecutive loss without making a gain, of 24.82 per cent.
Despite this, the fund has a top-quartile alpha ratio of 1.59 as well as a top-quartile annualised return of 10.48 per cent over five years.
What’s more, over the same time period it has outperformed both its sector and benchmark by nearly 20 percentage points, achieving total returns of 74.13 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Manager Martin Skanberg is a European equity analyst who specialises in industrials, which perhaps explains the fund’s sizeable 17.85 per cent weighting within the sector.
The fund’s highest weighting, however, is in financials at 20.04 per cent. Schroder European has also allocated 15.91 per cent of its portfolio to healthcare, 10.84 per cent to telecom, media & technology, 9.46 per cent to services and 6.73 per cent to basic materials.
In terms of country allocation, the £397m fund holds over 20 per cent each in French, Swiss and German equities. The remaining 40 per cent consists of Dutch, Italian, Beligan, Swedish, Irish and Spanish equities.
Schroder European has a clean OCF of 0.93 per cent and yields 1.33 per cent.
This fund just falls into the second quartile for its alpha ratio of 1.29, but has achieved top-quartile annualised returns of 10.24 per cent over five years.
The four FE Crown-rated fund, which is £1.5bn in size, is managed by Paul Wild, assisted by analyst Oliver Juggins.
The fund invests at least 65 per cent of its portfolio in large-caps to make its suitable as a ‘core’ fund and focuses mostly on sector allocation when picking stocks through a business cycle approach.
However, the team blends both a top-down and bottom-up approach, switching their attentions to their economic views once sector weightings have been decided and choosing which companies they believe will weather any potential storms the best.
Wild also analyses earnings momentum and cash flow, favouring businesses with an easily-definable strategy.
However, despite the fund’s weighting in large-caps and the team’s thorough analysis, it has posted bottom-quartile volatility of 17.29 per cent. Wild appears to have utilised this volatility though, achieving total returns of 70.28 per cent and outperforming its sector average and benchmark by 13.93 and 18.62 percentage points respectively.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Similarly to the aforementioned funds, JOHCM Continental European has its largest weightings in financials, consumer products and telecom, media & technology sectors.
The fund has a clean OCF of 0.7 per cent and has a performance fee of 15 per cent if the fund outperforms the benchmark.