There are areas of the market such as in the US, global emerging markets and global sectors where, time after time, active managers have struggled to add value against their benchmarks and failed to justify their higher ongoing charges.
There are sectors where they have flourished, though, and one of the best examples is in Europe.
A recent FE Trustnet study showed that the IA Europe ex UK sector has been the best hunting ground for active managers as 70 per cent of funds within the peer group have beaten the MSCI Europe ex UK index over three, five and 10 years.
Therefore, in the next article of this series and as the market is very much en vogue thanks its recent rally as a result of the ECB’s QE programme, we’ve decided to drill down to see which European funds have completely dominated their sector over the past decade.
To be included in the list, each fund has to be top quartile over 10 years, outperforming over one, three and five years and must have beaten the sector in at least seven of the last full 10 calendar years.
Capital preservation is also taken into account, as each fund has to be top quartile for its downside risk, risk-adjusted returns (as measured by its Sharpe ratio) and maximum drawdown, which shows the most an investor would have lost if they had bought and sold at the worst possible times, over 10 years.
According to FE Analytics, only three funds from the 66 which have a long enough track record have made the grade: namely Henderson European Selected Opportunities, FF&P European All Cap Equity and Jupiter European.
FE data shows the £67m FF&P European All Cap Equity fund has been the sector’s best performing portfolio over the last 10 years. It has returned a hefty 261.92 per cent over that time, beating both the sector average and its benchmark – the MSCI Europe ex UK index – by 150 percentage points.
Performance of fund versus sector and index 10yrs
Source: FE Analytics
The fund is also top quartile over one and five years, though has slipped into the second quartile over three years.
Nevertheless, it has outperformed the sector average in seven out of the last 10 calendar years including top-quartile returns in a variety of market conditions such as 2007, 2008, 2009, 2010, 2011 and 2013.
As the fund’s name suggests, FF&P European All Cap Equity invests across the market-cap spectrum. It is a concentrated portfolio of 43 holdings and counts the likes of Heineken, Nokia and Danone as top 10 positions.
However, despite its concentrated nature and bias towards mid and small-caps, it has performed well from a capital preservation standpoint as well.
In fact, at just 34 per cent, it has had the sector’s third lowest maximum drawdown over the past 10 years and also has the best downside risk score and risk-adjusted returns over the period in question.
Unfortunately though, while it is open to UK investors, FF&P European All Cap Equity isn’t readily available on the major fund platforms.
One which is, however, is the five crown-rated Jupiter European fund headed up FE Alpha Manager Alexander Darwall.
With an AUM of £3.1bn, it is one of the largest in the sector but Darwall (pictured) has rewarded his unitholders by turning in top quartile returns over one, three and six months and over one, three, five and 10-year periods.
Source: FE Analytics
Those returns come as a result of the fund’s consistent performance as, apart from 2005, 2006 and 2013, it has beaten the sector and its FTSE World Europe ex UK benchmark in each of the last 10 calendar years.
Jupiter European features in the FE Select 100 and the FE Research team rates the manager highly due to his bottom-up strategy leading him to companies that have dominant market positions, superior pricing power and a higher degree of predictability in terms of earnings. 
“Darwall’s approach to investment does not appear original on paper, but the quality of his analysis makes all the difference,” FE Research said.
“He has created a good track record based on his detailed knowledge of companies – not only does he try to assess their future value compared with their current worth, but he also wants to understand how they will differ from their competitors over the long term.”
“He achieves this through direct contact with the firm, cross referencing and by putting his extensive experience of investment to good use.”
They added: “The consistent peer group and benchmark-beating performance, in what has been a difficult market over the past decade, underlines the manager’s quality.”
Given Darwall’s focus on quality, it is unsurprising that his fund has been one of the best at protecting its investors’ capital over the past 10 years, which has included two major down markets in European equities – the global financial crisis and the European sovereign debt crisis.
It has been top decile for its maximum drawdown, downside risk and risk-adjusted returns over the past 10 years and has achieved that feat by being truly active as it has been bottom decile for its tracking error but second percentile for its alpha generation relative to its benchmark.
The final fund to have ‘dominated’ is the £2.3bn Henderson European Selected Opportunities.
While it has made the grade due to its long-term track record, it must be noted that Henderson European Selected Opportunities has only been headed up by FE Alpha Manager John Bennett since February 2010.
The fund had previously been managed by Roger Guy and Guillaume Rambourg.
Since Bennett has been at the helm, it has outperformed both the sector and benchmark in four out of the last five calendar years. That means it has been a solid top-quartile performer since Bennett has been in charge as its returns of 74.03 per cent are 25 percentage points greater than those of its benchmark.
Performance of fund versus sector and index since Feb 2010
Source: FE Analytics
As well as sitting in the top quartile for its maximum drawdown, Sharpe ratio and downside risk over 10 years it is also considerably outperforming in terms of those metrics since Bennett has been manager.
That performance profile and Bennett’s highly rated approach – which revolves around thematic investing and a focus on attractively valued market leading companies – means Henderson European Selected Opportunities has been awarded an ‘AA’ rating by Square Mile, the investment research and consultancy group.
“This fund provides investors access to a well-experienced manager/team and a strategy that aims to be flexible across all market conditions. These two factors lead us to a very positive conclusion on the fund, for it is very difficult to have one without the other,” Square Mile said.
“There will, of course, be times when it may struggle versus the benchmark, especially given the team’s naturally contrarian inclinations.”
“However, having faith in the team’s ability to successfully examine both an industry’s dynamics and a company on its own merits has, more often than not, reaped rewards for investors over the longer term.”
