The majority of commentators believe it will be far from plain-sailing in the region, however, so it is important that investors think long and hard about the fund and the manager they choose to back.
In the second part of a new series, FE Trustnet reveals the funds in the sector that have the highest ratings from FE across the board, using three key measures: FE Crown Ratings, FE Alpha Manager and the FE Adviser Fund Index.
How the ratings work
The highest FE Crown Ratings go to funds that score highest across a blend of Alpha, volatility and consistency measures – favouring those that produce a steady, manager-led performance with minimal risk.
FE Alpha Manager ratings go to the top 10 per cent of fund managers in the UK and are awarded only to those who have added real value to the performance of their funds.
Funds that appear in the FE Adviser Fund Index are chosen by FE's panel of leading independent financial advisers, and represent the best picks of some of the UK’s leading fund selectors.
BlackRock European Dynamic
FE Alpha Manager Alister Hibbert’s BlackRock European Dynamic fund is the best-performing portfolio in the IMA Europe ex UK sector of the last decade, with returns of 273.28 per cent. This compares with 113.28 per cent from its sector average, and 125.02 per cent from its benchmark.
Only two developed market equity funds – Franklin UK Mid Cap and Old Mutual UK Select Mid Cap – have returned more over a 10-year period.
The fund is also a top-quartile performer over one, three and five years, as well as over one and three months.
Its returns of 40.76 per cent over five years are particularly impressive, given that both the sector and index have lost money over the period.
Performance of fund, sector and index
| Name | 1yr returns (%) | 3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| BlackRock - European Dynamic | 20.76 | 23.59 | 40.76 | 273.28 |
| FTSE World Europe EX UK Index | 11.3 | 1.76 | -6.11 | 125.02 |
| IMA Europe Excluding UK | 12.37 | 4.96 | -5.76 | 113.28 |
Source: FE Analytics
This is a fund that is susceptible to steep losses however, reflected in its slight underperformance during the down-market of 2011.
It has an annualised volatility over 10 years of 20.41 per cent – around 2 percentage points more than its sector average.
Hibbert runs a concentrated portfolio of 40 stocks, with the first 10 accounting for close to 50 per cent of assets under management.
By far his biggest sector position is consumer products, which has a 30 per cent weighting. Nestle and Pernot Ricard are both top-10 holdings.
His biggest underweight is financials, particularly banks.
Regionally, Germany and Denmark are his biggest overweights.
Given the high-risk nature of European equities at the moment, no fund in the IMA Europe ex UK sector is currently included in the AFI Cautious index; however, BlackRock European Dynamic features in both the AFI Aggressive and AFI Balanced indices.
The £1.1bn fund has a total expense ratio (TER) of 1.67 per cent and a minimum investment of £500.
Schroder European Alpha Plus
The £726m Schroder European Alpha Plus fund is the smallest and youngest of the three listed in this article, but it packs quite a punch.
It is headed up by FE Alpha Manager Leon Howard-Spink and has delivered 144.79 per cent since its launch in September 2003, significantly outperforming its sector and benchmark, crucially with less volatility.
It outperformed in both 2008 and 2011, but it has still been able to keep up with the market – or beat it – during rallies.
Performance of fund vs sector and index since launch
Source: FE Analytics
Although BlackRock European Dynamic has returned more over the period [211.91 per cent], its annualised volatility is 2 percentage points higher than that of Schroder European Alpha Plus.
Howard-Spink’s fund has a significant overweight in basic materials. The sector makes up 17.4 per cent of the fund compared with 8.6 per cent in its benchmark.
Oil equipment company Fugro is a top-10 holding.
The fund is very much large cap focused, with 90 per cent of its assets invested in companies with a market cap of more than £3bn.
Like BlackRock European Dynamic, Schroder European Alpha Plus is a member of the AFI Balanced and Aggressive indices. It has a TER of 1.68 per cent and a minimum investment of £1,000.
Jupiter European
Another fund with five crowns, an FE Alpha Manager at the helm, and a constituent of the AFI Aggressive and Balanced indices, Jupiter European is among the three best-performing European portfolios over three, five and 10 years.
Alexander Darwall’s £1.7bn fund has consistently been as volatile as Schroder European Alpha Plus and has protected even better against the downside in recent years; however, Jupiter European's returns have been more in line with those of BlackRock European Dynamic during rallies.
Performance of funds vs sector over 3yrs
Source: FE Analytics
Darwall currently holds 39 companies. His top-10 alone account for 60 per cent of assets under management.
Industrials and healthcare are by far his two biggest sector allocations, with a weighting of 38 and 30 per cent respectively. The manager targets best-in-class companies with strong balance sheets, and so often holds stocks that the market deems to be “expensive.”
Jupiter European is the cheapest of the three funds, with a TER of 1.5 per cent. It has a minimum investment of £500.
To find top-rated funds yourself on FE Trustnet, click here.