After the UK’s vote to leave the European Union and the election of Donald Trump as US president, another political event that investors have to deal with is the Italian referendum on constitutional reform. 
On 4 December, the country will be asked whether they think the Italian Constitution should be amended to allow the reform of the appointment and powers of the Parliament of Italy, as well as the partition of powers of state, regions and administrative entities.
Italy has a bicameral system, where its two houses have the same powers as each other; this often leads to political gridlock and the country’s notoriously slow, costly government. Changes proposed by prime minister Matteo Renzi and his centre-left Democratic Party would radically reform the system and tip the balance of power towards the Chamber of Deputies, which Italy’s equivalent of the House of Commons.
Both of the country’s chambers have voted in favour of the reforms but they did not reach the required two-thirds majority to force the legislation through: this is why the matter has gone to a referendum. Renzi has also said that he would stand down if he loses the referendum as he would not want to “scrape by and just float there”.
Darius McDermott, managing director of FundCalibre, said: “If Renzi loses, European market reaction may well be stronger and longer than we have seen in the post-Brexit and post-Trump days as investors worry that this could be the beginning of the end for the EU.
“It could be a serious trigger point and bad for risk assets. European banks could take a hit and bond yields could widen in the periphery countries – the cost of Italian government debt would likely spike, which might ripple through to other southern countries such as Spain and Portugal. The German bund could do well as a safe-haven asset, as could gold.
“If Renzi wins there should be relative calm in the markets, and possibly a small relief rally. Italian government bonds should do well and also Italian equities. The downside is that it could cause complacency ahead of the all-important French election next year. A Le Pen win could still be a nail in the coffin for the EU and again we would expect more volatility and over a prolonged period of time.”
In the following article, we look at three funds that McDermott thinks could stand up to any increase in uncertainty for Europe.
FE Alpha Manager Alexander Darwall has built up a strong track record over his time on this £3.9bn fund. Since he took over in January 2001, it has made a 306.56 per cent – substantially outperforming its benchmark and making it the IA Europe ex UK sector’s best performer.
Performance of fund vs sector and index under Darwall
Source: FE Analytics
McDermott said: “The manager of this fund has developed a coherent and consistent investment process that has a record of success in different macroeconomic environments.
“His approach is simple: he wants world-class companies that can sustain profit growth and margins over a long period of time, irrespective of global macro themes.”
Given this, Darwall tends to prefer businesses that operate globally, have differentiated products or services and command pricing power. Current top holdings include Syngenta, RELX, Novo Nordisk, Wirecard and Amadeus, with Germany, Denmark and France being the biggest country weightings.
Jupiter European has a clean ongoing charges figure (OCF) of 1.03 per cent.
FE Alpha Manager John Bennett has managed this £479.5m fund since February 2010; he was joined by Asim Rahman as co-manager in 2014. Over Bennett’s tenure, the fund has made a top-quartile total return of 110.83 per cent, outpacing its benchmark by a wide margin in the process.
Performance of fund vs sector and index under Bennett
Source: FE Analytics
“This fund's process is governed by early identification of industry or sector themes that will still be around a decade from now,” McDermott said.
“This allows the managers to ignore the macro-driven fear and optimism that consumes other investors, and focus on what matters - real or 'absolute' value. It currently has around 6 per cent exposure to the Italian market.”
Bennett tends to favour large-caps with his biggest positions including the likes of Novartis, Roche, Nestle, SAP and Nordea Bank. Its biggest geographical weightings are to Switzerland, Germany and Sweden; on a sector basis its financials, healthcare and consumer goods.
Henderson European Focus has a 0.85 per cent clean OCF and is yielding 1.50 per cent.
Mirabaud Equities Europe ex UK Small & Mid
This fund, which is managed by Ken Nicholson and Trevor Fitzgerald, is a newcomer to the space as it only launched in November 2015. Since then, it has made a 23.35 per cent total ranking, putting it in the IA European Smaller Companies sector’s top quartile.
Performance of fund vs sector and index since launch
Source: FE Analytics
Although the fund is relatively new, Nicholson has worked in the asset management industry since 1985. Prior to joining Mirabaud Asset Management last year, he had run the well-respected Standard Life Investments European Smaller Companies fund for seven years.
McDermott said: “This fund is around 11 per cent invested in Italian companies, but the manager ignores European politics (apt in this situation) and most economic factors, and focuses on individual companies to find Europe's hidden gems.
“The fund is designed to be pragmatic and adaptable. Key to the team's success is an intensive and targeted road-trip program to meet as many companies as possible.”
Mirabaud Equities Europe Ex-UK Small and Mid has a clean OCF of 1.05 per cent.