There are 17 European funds that have fallen less than the average peer during down markets, according to data from FE Analytics taken from the past five years.
As European markets continue to digest the impact of the Russia-Ukraine conflict, the implications for investors are yet to be fully understood.
Russia is facing severe financial sanctions which threaten to throw it into a recession, the owners of the critical Nord Stream 2 natural gas pipeline project are looking to file insolvency and the conflict has pushed oil prices to near decade highs.
The extreme geo-political stress in Europe, coupled with the prospect of even further inflation fuelled by rising energy prices and disruptions to supply chains could have major impacts for the European economy and its companies.
In this uncertain environment, investors may wish to limit their European equity risk. To identify which European funds could be best placed to mitigate any downward moves in markets, Trustnet looked at funds that have exhibited the lowest downside capture ratios of the past five years.
This ratio helps to identify which funds lost less than the average fund in the peer group in periods when the market is declining.
Out of the 121 funds in the Investment Association’s Europe sector with a five-year track record, there were 17 funds that exhibited a downside capture ratio of 90 or less.
Although all of the funds below have negative year-to-date returns and low downside ratios, only some have delivered above-average longer-run performance. For context the five-year return and upside ratios were also included.
Source: FE Analytics
The Robeco QI Continental European Conservative Equities fund exhibited the lowest downside capture ratio of 75.9 over the past five years. However, its upside capture ratio was even lower at 60.6.
Run by Robeco’s quantitative equities department, fund managers Pim van Vliet, Arlette van Ditshuizen, Maarten Polfliet, Jan Sytze Mosselaar and Arnoud Klep invest in low-volatility stocks with lower downside risk.
These “more stable” stocks tend to be overlooked by investors, though they offer relatively high returns given their risk profile, according to the managers.
Indeed, the fund is top quartile amongst its peers over the past year, but over the past three years it remains bottom quartile with a return of 16.7% versus the IA Europe ex UK average of 25.7%.
With a downside capture ratio of 81.6, the VT Argonaut Equity Income fund has the second lowest downside capture ratio in the list above. But like the previous fund it has an even lower upside capture ratio of 73.4.
Fund manager Barry Norris runs the fund using an “earnings surprise” investment process and has built a portfolio of what he describes as “cheap, largely unfashionable companies” which will “benefit from ongoing structural trends and bottlenecks to global growth”.
Elsewhere in the table above, the Fidelity European fund stands out with a low downside capture ratio of 84, but with a comparatively higher upside capture ratio of 97.3.
Run by Sam Morse and Marcel Stotzel, this fund focuses on stocks that are attractively valued, but with good long-term growth prospects. The managers also place an emphasis on stocks that can grow their dividends, which include companies such as Nestle, Roche and LVMH.
This blend between quality and value has allowed the fund to remain in the top quartile of its peer group over the very short term as well as the long run.
It is worth noting that there were four funds in the list above with an upside capture ratio above 100, meaning that as well as losing less in down markets, they also managed to outperform their peers when markets were up.
With an upside capture ratio of 149.3 versus a downside capture ratio of 89.2, the Premier Miton European Opportunities fund exhibits the best relative upside/downside capture ratios in the list.
This all-cap strategy is one of the few funds in the peer group that invests across the market capitalisation spectrum, allowing the managers to take advantage of opportunities in small- and medium-sized companies.
Its managers Carlos Moreno and Thomas Brown are FE fundinfo Alpha Rated managers, meaning they have a track record of delivering alpha.
Elsewhere, the Comgest Growth Europe ex UK, was another notable fund that featured in the list – exhibiting a downside capture ratio of 85.1 versus a high upside ratio of 119.1.
Run by Comgest’s Alistair Wittet, Arnaud Cosserat and Franz Weis, these managers place an emphasis on quality and long-term growth.
It is invested in Europe’s well-known quality growth giants such as ASML and Novo Nordisk, which also feature in many global quality-growth funds.