Given the turbulence in markets in this part of the world, their wealth of experience and ability to protect against the downside and minimise volatility means their funds have been understandably in high demand.
Alexander Darwall’s Jupiter European fund has grown from £1.4bn to £2.3bn in the last 12 months alone, while Threadneedle European Select has more than doubled in size, to £2bn.
However, with popularity comes potential problems. Strong inflows can limit a manager's flexibility to invest across the market cap spectrum, as FE Alpha Manager David Coombs pointed out in a recent FE Trustnet interview.
During market crashes, managers can also find it difficult to sell out of big positions, which can have a significant impact on performance.
With this in mind, FE Trustnet highlights three lesser known funds in IMA Europe ex UK, which are viable alternatives to the heavyweights in the sector.
Henderson European Focus
FE Alpha Manager John Bennett’s Henderson European Focus fund has been one of the standout performers in the IMA Europe ex UK sector since the manager took over in February 2010.
The £86.8m fund is up 55.07 per cent over the period, compared with 33.55 per cent from the IMA Europe ex UK sector average, which is also its benchmark.
By point of reference, the Jupiter European fund has returned 62.93 per cent.
Performance of funds vs sector since Feb 2010
Source: FE Analytics
Bennett does have a slightly better record in the recent rally though, up 44.95 per cent over one year, compared with Darwall’s 41.44 per cent.
As the name of the fund suggests, it is a focused, best ideas portfolio of only 30 to 40 holdings.
The top-10 companies account for over half of the fund’s assets, and just two of these – Roche and Novartis – account for 18.7 per cent.
Healthcare and industrials are the manager’s two biggest overweights at present.
Bennett is currently quite cautious, as a result of the strong run of the European market in spite of worsening data.
He says steep valuations in dividend-paying companies are particularly worrying and seeks to protect against the risks of a correction by not overpaying for quality.
"Investors in our funds will be aware of our unwavering belief in the power of mean reversion," he said in a recent note to investors.
"While it may not seem a fashionable belief right now, we consider that profit margins are just one of the variables subject to this law."
"This is particularly noteworthy at a time of elevated corporate profitability in the western world. The difficulty, as ever, is in the timing."
"Nevertheless, we are sure that current profit margins are high and will most likely fall. We seek to protect our portfolio from such a prospect by making sure we do not overpay for the asset."
"Thus, when we study our list of holdings, we are comforted by the reasonable multiples our businesses are trading on."
Bennett has a significant exposure to small caps in his portfolio, recently adding Interpump – a world-leading manufacturer of high-pressure pumps – Adidas, and Swedish investment company Kinnevik.
Henderson European Focus has five FE Crowns, an ongoing charges figure (OCF) of 1.76 per cent, and requires a minimum investment of £1,000.
Bennett previously ran funds at Gartmore and GAM.
Richard Pease’s Henderson European Special Sits portfolio is another option, though at £700m, it’s a lot larger than Bennett’s fund. It is also less concentrated.
Allianz Continental European
The £45.2m Allianz Continental European fund is run by two FE Alpha Managers – Thorsten Winkelmann and Matthias Born, who came to the helm in November 2010.
The five crown-rated fund has the best record of all of those on the list – including Jupiter European – over the past two and a half years or so, with returns of 45.18 per cent. This puts it in the top decile of its sector.
Performance of funds vs sector and index since Nov 2010
Source: FE Analytics
The fund has easily beaten its FTSE E300 ex UK index over this period as well.
Winkelmann and Born invest predominantly in large caps, but have the flexibility to go down the market cap scale if they see fit.
The managers are currently backing French companies, which are by far their biggest regional overweight.
The country accounts for 30 per cent of overall assets. L’Oreal, Richemont and industrial company Legrand are all top-10 holdings.
Allianz Continental Europe requires a minimum investment of £500 and has an OCF of 1.76 per cent.
Scot Wid HIFML European Focus
This tiny portfolio, with assets under management (AUM) of just £6.9m, is also headed up by star manager Darwall (pictured).
Unsurprisingly, there is some cross-over between Jupiter European and this fund, but crucially the smaller size gives the manager greater flexibility to invest across the market cap spectrum in any way he sees fit.
Liquidity issues will also be non-existent during market turbulence, given the much smaller volumes.
While there is cross-over, the Scot Wid HIFML fund has outperformed Jupiter European since its launch in January 2009, with returns of 134.08 per cent.
This is 8.81 percentage points more than Darwall’s larger fund.
Performance of funds vs sector and index since Jan 2009
Source: FE Analytics
The Scot Wid fund is more concentrated overall, with only 30 companies in the entire portfolio, compared with the Jupiter fund’s 40.
In this regard, it can be looked upon as a best ideas portfolio. This tends to be associated with higher volatility, though Oriel’s Patrick Barton fervently denied this in a recent FE Trustnet interview.
Darwall’s two funds have almost an identical volatility since January 2009.
French company Zodiac Aerospace and German lab experts Sartorius have far bigger positions in the smaller fund, both making it in to the top-10.
The five crown-rated Scot Wid HIFML European Focus fund requires a minimum investment of £5,000 and has an OCF of 1.72 per cent, making it a touch cheaper than Jupiter European, which charges 1.79 per cent every year.
