Be it Richard Pease’s Henderson European Special Situations, Alexander Darwall’s Jupiter European or David Dudding’s Threadneedle European Select, they are usually the portfolios in the limelight.
In truth, they deserve to be, given the fact that all three are top-quartile performers over five and 10 years. However, there is another fund that has matched, and in some cases bettered, their success.
The five crown-rated Baillie Gifford European fund is a top-quartile performer in the IMA Europe ex UK sector over one, three, five and 10 years – however it still only has £82.7m in assets under management.
According to FE Analytics, it has returned 184.7 per cent over 10 years, beating the average fund in the sector by more than 40 percentage points and its benchmark – the MSCI Europe ex UK index – by more than 50 percentage points.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The fund has also had a lower annualised volatility than the index over this time.
The fund is headed up by the trio of Thomas Coutts, Paul Faulkner and Stephen Paice. Although Coutts is the longest serving of the three, Paice (pictured) told FE Trustnet that the current managers use the same principles as the previous team.
"Our investment philosophy is based on four things," he said.
"Firstly, we are long-term investors. What I mean by that is our turnover rate over the last 10 years has been 20 per cent. What that means is that we are looking to hold a stock for at least five to 10 years.""The second is that we are bottom-up investors. We are business analysts primarily, so we think predicting or forecasting macroeconomics is a distraction. We feel our time is much better spent picking the best companies that have a competitive edge."
"One of the other points is that we are high-conviction investors, so we always try to maintain a high active share."
"What is also crucial is the corporate structure of Baillie Gifford. We are an independent multi-generational partnership and investments are all we do, which helps our long-term strategy of picking the best stocks," he added.
The Baillie Gifford European fund is currently comprised of 67 holdings from across the market cap spectrum.
Companies from 12 different countries in continental Europe – plus the Republic of Ireland – are represented.
Paice’s largest single-country exposures are to Sweden and Switzerland, making up 20.1 per cent and 17.9 per cent of the fund's AUM. However, given its bottom-up strategy, Paice says it does not matter where the company they invest in resides.
"We are looking for companies that can grow their profitability," Paice said.
"That means finding companies that can find growth organically and can get good return on capital. From there, these can be companies that are either market leaders or have had a recent change in dynamic," he added.
Paice says the key to the fund’s long-term success stems from finding co-operative management teams and valuations.
"Because we are trying to pick the best companies, we need to find management teams who align with both us and our clients," he said. "We do tend to favour long-term management structures. While we don’t mind short-term volatility, we want the management teams to be able to give us their future foresight."
"However, though you want to be invested in the best companies, valuations are key of course. Not all good companies make for a good investment," he added.
Adrian Lowcock (pictured), senior investment manager at Hargreaves Lansdown, says that the Baillie Gifford European fund is a good option for anyone who wants exposure to the continent.
"It is one of those things where it is basically a difficult sector for any fund manager to capture mainstream attention, as people tend to not want to invest in Europe," he said. "They have a bottom-up style and when you look at the fund’s performance, it seems that the team’s early decisions rewarded them. They have around 25 per cent in financials, which will have been a driver of performance over recent years."
"However, going back, the fund has performed very similarly to the big players, such as Richard Pease and Alex Darwall," he added.
One of the major talking points in the industry at the moment is fund size and capacity, with many experts questioning the ability of larger funds to outperform due to liquidity constraints.
However, Lowcock says the fund's nimble size does not give the managers any advantage.
"The fund is a smaller size than others and is a bit more nimble, but it has a low turnover rate so they aren’t the most active of managers," he said.
"Where it would help would be if there was a crisis, but they don’t chop and change the portfolio much. It does mean, however, they aren’t going to hit the ceiling any time soon and they have all the flexibility available," he added.
The Baillie Gifford European fund has an ongoing charges figure (OCF) of 1.61 per cent and requires a minimum investment of £1,000.
