JPM Europe Dynamic Ex UK, Henderson European Focus and FP CRUX European Special Situations are among the IA Europe Excluding UK funds that have outperformed their peers on a variety of important metrics over recent years.
European equities have had a strong run in the opening half of 2017, thanks to steadily improving economic data and the avoidance of a number of political landmines. This is a sharp turnaround from recent years, when Europe was an unloved part of the market.
FE Analytics shows that the MSCI Europe ex UK index made an 11.80 per cent total return in first six months of the year, outperforming the 6.04 per cent gain made by the MSCI AC World.
Performance of indices in H1 2017
Source: FE Analytics
With this in mind, the next article in this series will look at the IA Europe Excluding UK sector. To recap, we will assess funds by their average decile rankings for cumulative five-year returns to the end of 2016, performance in the three most recent individual calendar years, annualised volatility, maximum drawdown, alpha generation, Sharpe ratio, downside capture and upside capture relative to the MSCI Europe ex UK
Over the following pages, we take a closer look at the five European equity funds with the best average decile rankings for the 10 metrics in questions as well as revealing the top 25 on the final page.
JPM Europe Dynamic Ex UK
Source: FE Analytics
In fifth place with an average decile ranking of 2.9 and a total return of 120.78 per cent over the five years to the end of 2016 is JPM Europe Dynamic Ex UK, which is managed by John Baker, Jonathan Ingram and Blake Crawford. The £768.8m fund is in the IA Europe Excluding UK sector’s top decile for five-year returns, alpha generation relative to the index and Sharpe ratio. The managers concentrate on companies that have positive momentum in earnings, are high quality and are still priced below fair value. The FE Invest team, which has the fund on its Approved List, said: “The portfolio provides a higher-risk version of what could be described as ‘core’ European equities, with most of the returns being generated from the mix of the three factors together and stock picking.” JPM Europe Dynamic Ex UK has an ongoing charges figure (OCF) of 0.93 per cent.
Henderson European Focus
Source: FE Analytics
Next up we have John Bennett and Asim Rahman’s £567m Henderson European Focus fund, which has an average decile ranking of 2.7. It five-year return of 110.19 per cent is in the sector’s second decile but the five FE Crown-rated fund has top-decile numbers for alpha generation, maximum drawdown, Sharpe ratio and downside capture. The strategy behind the fund aims to be flexible across all market conditions and blends industry analysis with stock selection. Square Mile Investment Consulting & Research, which gives the fund an ‘AA’ rating, said: “There will, of course, be times when it may struggle versus the benchmark, especially given the team's contrarian inclinations and the portfolio's very concentrated nature. 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.” Henderson European Focus has a 0.85 per cent OCF.
Man GLG Continental European Growth
Source: FE Analytics
Man GLG Continental European Growth, which is managed by Rory Powe and holds five FE Crowns, is in the peer group’s first decile for its 164.27 per cent five-year return, alpha generation, Sharpe ratio, upside capture and downside capture. Overall, it has an average decile ranking of 2.6. The £693m fund focuses on growth stocks and has benefited from the strong run in this investment style over recent years. Highlighting the attractions of this style, Powe recently said: “Less political risk, a broadening economic recovery and benign monetary conditions have all contributed to today’s constructive environment for European equities. But we would argue that the recovery remains relatively fragile, and vulnerable to setbacks. The security situation today is nervous. Also many consumers suffer from job insecurity and are worried about the threat to jobs posed by technology. Indeed many of those who are employed would like to work longer hours. The region still suffers from overcapacity. This is why we would describe the recovery as broad but not deep, and one which is not dynamic enough to drive a sustained improvement in European profits. It explains why we prefer to single out those companies which can grow sustainably without the overt assistance of the economy.” Man GLG Continental European Growth has an OCF of 0.90 per cent.
Marlborough European Multi-Cap
Source: FE Analytics
With an average decile ranking of 2.4, David Walton’s £166.9m Marlborough European Multi-Cap fund is in second place in our study. The five FE Crown-rated fund has achieved top-decile numbers when it comes to five-year total returns, alpha generation, annualised volatility, Sharpe ratio and downside capture. The portfolio invests across the market cap spectrum but has a bias towards the lower end of the market: it currently has 13.9 per cent of assets in European mid-caps, 32.1 per cent in small-caps and 21.3 per cent in micro-caps. However, the fund currently has 17.3 per cent in cash. In his latest update, Walton explained: “The outlook for corporate profits in Europe remains strong – domestic demand in Europe including most of the south is now strong and interest rates remain very low. At the same time smaller companies have been re-rated to historically high valuation levels and there are a significant number of IPOs, mostly driven by venture capital funds selling down their stakes. In this environment we have become more selective in seeking out cheaply valued growth companies and this has led to an elevated cash position.” Marlborough European Multi-Cap has a 1.03 per cent OCF.
FP CRUX European Special Situations
Source: FE Analytics
In first place after posting an average decile ranking of just 2 is the £1.7bn FP CRUX European Special Situations fund, which is headed up by FE Alpha Manager Richard Pease with James Milne joining him in 2015. The five FE Crown-rated fund’s 114.21 per cent five-year return puts it in the second decile but it is in the sector’s top decile for alpha generation, annualised volatility, Sharpe ratio and downside capture. Pease has more than 30 years’ experience in the financial industry. He focuses on good quality businesses that are cash generative, possessing an edge that their competitors find difficult to assail and run by management teams with proven track records. The fund also has a long-term investment horizon and tends to undergo less portfolio turnover than its average peer. Square Mile, which gives the fund a ‘AAA’ rating, said: “All this taken together does mean that there will be periods when the strategy may struggle such as when the markets are chasing certain themes, for example rewarding more cyclically sensitive companies, but over a cycle we believe the fund should continue to be a standout performer.” FP CRUX European Special Situations has a 0.87 per cent OCF.
Source: FE Analytics