Baillie Gifford European, FP CRUX European Special Situations and Aviva Investors European Equity are among some of the European equity funds to have delivered the best actively-managed returns while offering the lowest charges, according to a study from FE Trustnet.
This comes as the next part of our ongoing series (which has previously focused on UK and global equity funds within the IA universe).
In a bid to find the most skilled managers offering the most competitive ongoing charges figures (OCFs), we have calculated the average charges, five-year alpha generations and five-year information ratios of all actively-managed funds within the IA Europe ex UK sector.
We then whittled the list down to all funds that achieved better-than-average scores across these metrics while also outperforming the MSCI Europe ex UK index over five years to the end of June.
From these 23 remaining funds, we then ‘double distilled’ the data (as we have done in our previous studies) by recalculating the averages and total returns and selecting the outperformers once more. In this instance, however, only one fund remained on the list – even when we removed extreme results from individual funds that could skew the averages.
The runaway winner is therefore Baillie Gifford European, which was launched in 2000 and has been awarded five FE crowns.
Out of the 23 funds that passed through our filters the first time around, it also boasts the lowest OCF of 0.69 per cent; this is also the third-lowest charge for an actively-managed fund within the entire 110-fund sector.
Over five years, the fund has outperformed its average peer and its MSCI Europe ex UK benchmark by 33.5 and 41.32 percentage points respectively with a total return of 147.21 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Not only this, the fund has an information ratio – which is a risk-adjusted measure of actively-managed performance and assesses individual manager skill – of 0.76. According to FE Analytics, an information ratio of 0.5 reflects ‘good’ performance, 0.75 reflects ‘very good’ performance and 1 reflects ‘outstanding’ performance.
It has an alpha generation – which measures the under or over-performance of a fund relative to a benchmark – of 5.98. This means that, when the MSCI Europe ex UK index is assumed to have a return of zero over five years, the fund has returned an additional 5.98 per cent.
Baillie Gifford European is headed up by Thomas Coutts, Stephen Paice, Moritz Sitte and Tom Walsh. The £291m fund aims to invest in high-quality business with significant growth potential and strong competitive positions within the broader market.
The fund’s portfolio consists of between 40 and 80 stocks at any one time, and the management team aims to keep its annual portfolio turnover below 20 per cent. Currently, its turnover is just 10 per cent. It is also worth noting that the fund has an active share of 87 per cent, which means the portfolio is 87 per cent differentiated from the fund’s benchmark.
While this is the only fund to have squeezed through all of our filters, a further three funds made the grade on all metrics apart from their information ratios when the data was re-run the second time.
FP CRUX European Special Situations – which nevertheless has a five-year information ratio of 0.6 – has five FE crowns and is headed up by FE Alpha Manager Richard Pease and James Milne.
The £1.7bn fund also has an alpha generation relative to the MSCI Europe ex UK index of 7.18, which is the third-highest in the sector, and an OCF of 0.87 per cent.
Pease and Milne adopt a bottom-up stock selection process and aim to find companies with recurring revenues, high barriers to entry, strong pricing power, low capital requirements and a competitive edge relative to the broader market. Examples of its largest individual holdings include the likes of Finnish financial company Sampo, German investment group Aurelius and Cypriot property management firm Aroundtown Holdings.
Its top 10 positions account for roughly one-third of the overall portfolio, which consist of 61 holdings.
Over five years, the fund has returned 139.67 per cent compared to its sector average’s return of 113.71 per cent, its FTSE World Europe ex UK benchmark’s return of 113.24 per cent and the MSCI Europe ex UK index’s return of 105.89 per cent.
Performance of fund vs sector, benchmark and index over 5yrs
Source: FE Analytics
The second fund to have survived our ‘double distilled’ alpha generation filter while outperforming the index is Aviva Investors European Equity which, while falling just short of the required information ratio, still has a five-year measure of 0.67.
The five crown-rated fund is £193m in size and aims to achieve long-term growth through a diversified portfolio of stocks ranging from across the market cap spectrum. Investors should note, however, that managers Frederic Guignard and Ed Kevis have only been at the helm of the fund since 2016, following the departure of Mark Denham who has since moved to Carmignac.
The fund, which has an alpha generation of 6.02 and an OCF of 0.85 per cent, has comfortably outperformed its sector average, FTSE Europe ex UK benchmark and the MSCI Europe ex UK index over five years with a total return of 142.19 per cent. Its largest individual holdings include German software corporation SAP AG, Swiss healthcare company Roche and nutrition, hygiene and personal care conglomerate Unilever.
The third and final fund in the IA Europe ex UK sector to boast some of the lowest charges and best actively-managed returns is Henderson European Growth, which has five FE crowns and is headed up by Simon Rowe.
The fund has an OCF of 0.85 per cent, an information ratio of 0.58 and an alpha generation of 6.25 per cent.
Over five years, the £1.2bn fund has outperformed its average peer by 23.24 percentage points with a total return of 136.95 per cent. While it isn’t benchmarked against the MSCI Europe ex UK index, it has outperformed it by 31.06 percentage points.
Performance of fund vs sector, benchmark and index over 5yrs
Source: FE Analytics
Rowe focuses on absolute valuations when it comes to stock selection as opposed to relative value. He also aims to find ‘all-weather’ stocks that can generate consistently strong returns regardless of market conditions. In order to ensure the companies he invests in are sturdy, he focuses on their management teams, their valuations, their financial models, their corporate governance structure and whether they are good businesses or not.
Funds that passed the first OCF filter and have achieved particularly strong alpha generations – yet fell short at the second hurdle – include Man GLG Continental European Growth, which has an OCF of 0.9 per cent; Schroder European Alpha Income, which has an OCF of 0.93 per cent; and BlackRock European Dynamic, which has an OCF of 0.92 per cent.