With all this volatility, many investors have understandably steered clear of the region.
However, several funds have managed to deliver impressive returns despite all the turmoil.
The FE Research team shares five of the best.
BlackRock European Dynamic
The five crown-rated BlackRock European Dynamic fund is undoubtedly one of the leaders in the European space – registering top-quartile performance over three, five and 10 years.
| Name | BlackRock European Dynamic |
|---|---|
| Fund size | £1.7bn |
| Min. investment | £500 |
| OCF | 1.67% |
| Yield | 0.50% |
| Manager | FE Alpha Manager Alister Hibbert |
| FE Crown Rating | Five crowns |
Source: FE Analytics
Over the last decade, the £1.7bn fund has made 332.94 per cent, while the IMA Europe ex UK sector gained 151.32 per cent and the FTSE Europe ex UK index made 164.89 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Perhaps even more impressive is that the fund, managed by FE Alpha Manager Alister Hibbert, has beaten the sector and index in every calendar year apart from 2011.
The only other year it lost money was in 2008, but it protected better against the downside than both its peers and the index.
"The team is well aware of how the situation in Europe can harm the portfolio even if the long-term reasons for investing in the underlying companies still hold true," said FE Research analyst Amandine Thierree (pictured).
"This is why it prefers businesses that derive a significant proportion of their earnings from outside Europe, such as the Spanish textile company Inditex, which generates 75 per cent of its revenues from abroad."
"Hibbert’s style is more aggressive than other BlackRock portfolios focused on the continent, with greater sensitivity to the performance of European stock markets; this is a characteristic the fund has kept even when it has shifted to a slightly more defensive stance."
IM Argonaut European Alpha
Thierree also likes the £210m IM Argonaut European Alpha portfolio, run by FE Alpha Manager Barry Norris and Greg Bennett.
"Norris has been consistent in applying his strategy, despite not returning as much as the index in certain periods," Thierree said.
"In 2012, the fund underperformed even though all of its holdings’ earnings were upgraded relative to analysts’ expectations. It should be rewarded later when consensus expectations are reassessed."
"Norris’s integration of market sentiment differentiates his strategy from that of other groups."
"Even though it can be partly explained by the limited resources available at Argonaut, it is an interesting approach and the performance of the fund so far has justified it."
| Name | IM Argonaut European Alpha |
|---|---|
| Fund size | £210m |
| Min. investment | £500 |
| OCF | 1.18% |
| Yield | 0.66% |
| Manager | FE Alpha Manager Barry Norris & Greg Bennett |
| FE Crown Rating | Five crowns |
Source: FE Analytics
The five crown-rated fund has beaten the MSCI Europe ex UK index over three and five years, although it has only outperformed its peer group over one.
As Thierree said, the fund has trailed in recent rallies, lagging the sector and index in 2007 and 2012.
Over five years, the fund has gained 23.76 per cent. The sector and index have made just 14.98 per cent and 8.46 per cent respectively over this period.
Performance of fund since launch vs sector and index
Source: FE Analytics
Henderson European Growth
FE Research analyst Charles Younes tips the five crown-rated Henderson European Growth fund, run by FE Alpha Manager duo Richard Pease and Simon Rowe.
| Name | Henderson European Growth |
|---|---|
| Fund size | £937m |
| Min. investment | £1,000 |
| OCF | 1.76% |
| Yield | 1.20% |
| Manager | FE Alpha Managers Richard Pease & Simon Rowe |
| FE Crown Rating | Five crowns |
Source: FE Analytics
Over the last decade, the fund has been one of the top portfolios in the sector, returning 236.89 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It has also posted top-quartile returns over three and five years. It is third quartile over the short-term, although it has beaten the index over one year.
"One of the major reasons for this outperformance has been the team’s focus on quality businesses, which has reduced risk and helped the fund protect capital in the turbulent markets that followed the financial crisis," Younes (pictured) said.
"The fact that the fund has done well in both rising and falling markets also points to the strength of this strategy."
Younes says investors should be willing to take a more aggressive stance with this fund and plan to invest for at least seven years.
"The team has extensive experience of identifying companies that can grow steadily over the long-term and become leaders in certain niche markets. This should help the fund continue to outperform its peers."
"The steady nature of the fund makes it a good core holding, despite its decision to focus on medium-sized businesses more than large ones."
Jupiter European
Alexander Darwall is certainly a force to be reckoned with in Europe, with his five crown-rated portfolios dominating the sector over three, five and 10 years.
Younes said since the FE Alpha Manager took over the Jupiter European fund in 2000, its performance has been "outstanding".
| Name | Jupiter European |
|---|---|
| Fund size | £2.1bn |
| Min. investment | £500 |
| OCF | 1.79% |
| Yield | 0.30% |
| Manager | FE Alpha Manager Alexander Darwall |
| FE Crown Rating | Five crowns |
Source: FE Analytics
"It is ranked either first or second in its peer group over the last one, three and five years."
"In other words, the manager did a fantastic job of protecting investors’ capital when markets fell in 2008 but also did extremely well in the rebound of 2009 and 2010."
The fund has strongly outperformed both the sector and FTSE Europe ex UK index in every year since 2008.
Over 10 years, the portfolio has returned 277.82 per cent, according to FE Analytics.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
"Darwall’s approach to investment does not look original on paper but the quality of his analysis makes all the difference," Younes said.
"He has impressed with his detailed knowledge of companies – not only does he try to assess their future value compared with their current worth, he wants to understand how they will differ from their competitors over the long-term."
Schroder European Alpha Plus
Thierree also likes the £937.5m Schroder European Alpha Plus fund.
| Name | Schroder European Alpha Plus |
|---|---|
| Fund size | £937.5m |
| Min. investment | £1,000 |
| OCF | 1.68% |
| Yield | 0.32% |
| Manager | FE Alpha Leon Howard-Spink |
| FE Crown Rating | Five crowns |
Source: FE Analytics
FE Alpha Manager Leon Howard-Spink has managed the fund since December 2005, since when the fund has made 85.87 per cent, ahead of both the sector and FTSE Europe ex UK index.
Performance of fund vs sector and index since launch
Source: FE Analytics
"The fund lagged both its benchmark and Europe ex UK sector in 2007 and 2009. In the first of these periods, the market’s performance was driven by a few leading companies such as Nokia," Thierree said.
"In 2009, rallying banks and miners left the fund behind, as the manager limited his investments in both sectors due to concerns over how they make money."
"However, these short-term trends are exactly what Howard-Spink tries to avoid and consistency is essential in his strategy."
"When the fund beats its sector and benchmark, the excess returns are historically higher than the margin of underperformance when it lags behind."
