Fidelity Global Dividend, Newton Global Income and Artemis Global Growth are among some of the best-rated global equity funds to be overweight continental Europe, according to data from FE Analytics.
FE Trustnet decided to look at the global funds that are overweight the region relative to the MSCI AC World index following increasing positivity towards Europe.
In an article published last week, BlackRock’s Richard Turnill explained that, despite European equities seemingly becoming a consensus trade, the market area still has much further to run. His sentiment was echoed by Natixis’s chief market strategist David Lafferty, who said: “Many European stocks, including small and mid-caps, are trading at a significant discount to their US peers.
“While a lot of this was explained by political risk, we believe there is now ample room for European equities to begin catching up to US markets after almost seven years of underperformance (in local currency terms).”
That said, some investors may not feel comfortable upping their overall portfolio exposure to Europe significantly by buying into a regional European equity fund.
As such, we decided to focus on the funds in the IA Global and IA Global Equity Income sectors which have at least a 16 per cent weighting to continental Europe (the MSCI AC World index currently has a 15.1 per cent weighting).
Out of these 151 funds – which amount to 47.5 per cent of all vehicles across the sectors with five-year track records – we looked at those that have achieved an FE crown rating of four or more and are in the top quartile for their total returns over five years. The final list is shown in the below table:
Source: FE Analytics
Of these, the fund with the biggest regional exposure to continental Europe at 30.4 per cent is Fidelity Global Dividend, which has been managed by Daniel Roberts since its launch in January 2012.
Over five years, the four crown-rated fund has returned 120.69 per cent, outperforming its MSCI AC World benchmark and average peer’s returns by 12.42 and 33.47 percentage points respectively. Had investors placed an initial £10,000 into the fund over the same time frame, they would have received £2,034.29 in income alone.
Roberts aims to provide long-term growth and income through - as its overweight to Europe suggests - an unconstrained portfolio of stocks. It is relatively concentrated, given the breadth of its universe, and currently has exposure to 55 individual names. Within the fund’s European exposure, its largest regional overweights relative to the benchmark include The Netherlands, Switzerland, Germany and Spain.
Its holdings are also chosen with an emphasis on capital preservation. As such, it has a top-quartile five-year maximum drawdown (which measures the most money lost if bought and sold at the worst possible times) of 7.55 per cent, as well as a top-quartile downside risk (which predicts susceptibility to lose money during falling markets) and a top-quartile Sharpe ratio (which measures risk-adjusted returns).
The £870m fund has a clean ongoing charges figure (OCF) of 0.98 per cent and yields 2.74 per cent.
Next up for its overweight to continental Europe is Newton Global Income, which also has four FE crowns and resides in the IA Global Equity Income sector.
The fund has been headed up by Nick Clay and Ian Clark since 2015 and 2017 respectively, following the departure of James Harries. However, the fund’s thematic, top-down approach to portfolio construction (which Newton is well-known for) has been maintained by the current management team.
As such, the fund’s 26.27 per cent weighting to continental Europe is likely to be the result of overall positive sentiment towards the region.
Over five years, the £5.5bn fund has returned 108.65 per cent compared to its average peer’s return of 88.59 per cent. While it has underperformed its FTSE World benchmark by 10.38 percentage points over this time frame, it should be noted that many global equity funds fail to beat their benchmarks due to their high regional allocations to the expensive and efficient US market, as well as the breadth of the managers’ investable universe.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
It should also be noted that Clay and Clark adopt a cautious view to investing and, as such, the fund has a much lower maximum drawdown than the benchmark over five years at 6.97 per cent, as well as a lower downside risk. Relative to its peers, it also has a top-quartile Sharpe ratio.
The fund will hold a portfolio of between 40 and 70 stocks at any one time; this number will depend on how many opportunities are available which meet the managers’ strict valuation discipline.
In terms of income, it would have paid out £2,544.86 on an initial £10,000 investment five years ago. Newton Global Income has a clean OCF of 0.79 per cent and yields 2.9 per cent.
The fund on the list with the third-largest continental European weighting is Artemis Institutional Global Capital at 24.77 per cent. However, as the name suggests, the four crown-rated fund is only available to institutional investors.
The four or five crown-rated global fund with the fourth-highest European weighting is the firm’s more widely-available offering, Artemis Global Growth.
Also managed by Peter Saacke, the £872m fund has a very similar regional weighting to its institutional-only counterpart at 24.72 per cent.
The four crown-rated fund aims to provide capital growth through a highly-diversified portfolio of stocks, which will consist of between 140 and 200 individual holdings at any one time.
These are chosen using Artemis’s SmartGARP system which combines top-down and bottom-up inputs driven by six factors: growth, value, estimation revision, momentum, top-down and fund manager sentiment.
Over five years, it has outperformed its average peer and its MSCI AC World benchmark by 55.46 and 41.09 percentage points respectively with a total return of 150.92 per cent. It has done so with a top-quartile annualised volatility and Sharpe ratio, although it is in the second quartile for its maximum drawdown of 10.49 per cent and the third quartile for its downside risk.
Artemis Global Growth has a clean OCF of 0.84 per cent and yields 1.5 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fifth fund on the list for its 22.4 per cent regional weighting to continental Europe is Dodge & Cox Global Stock which, while not a household name, is available on many investment platforms.
The $2.7bn fund aims to provide both growth and income through a diversified portfolio of medium and large-cap stocks; it currently consists of 86 individual holdings and has an annual portfolio turnover of 32 per cent.
Over five years, the four crown-rated fund has returned 143.6 per cent compared to its sector average’s return of 95.46 per cent and its MSCI World benchmark’s return of 118.33 per cent. In terms of its risk metrics, it is in the top quartile for its Sharpe ratio but in the bottom quartile for its maximum drawdown of 14.19 per cent, which suggests it may not be best-suited to cautious investors.
Dodge & Cox Global Stocks, which is domiciled in Ireland, has a clean OCF of 0.69 per cent.
Other funds on the list that deserve an honourable mention include Premier Global Alpha Growth, F&C Institutional Global Equity and Invesco Perpetual Global ex UK Enhanced Index.