While the threat of deflation still plagues the market as a whole, the general consensus is that the eurozone is in recovery mode with PMI’s and economic data causing many fund managers to up their exposure to the region recently. From a retail investor and adviser point of view, the most popular way to gain access to European equities has traditionally been via funds such as Jupiter European and Threadneedle European Select.
However, Bignell’s European Opportunities has performed strongly over recent years, but has failed to attract the same amount of attention and inflows as some of his peers in the sector.
Willis, head of research at Whitechurch, for instance, rates Bignell (pictured) and says the fund has very similar characteristics to that of Ed Legget’s Standard Life UK Equity Unconstrained portfolio.
“Bignell has an impressive track record, but he is a bit of a forgotten hero in some respects,” Willis said.
Bignell launched his Invesco Perpetual European Opportunities fund in December 2007, having also run Invesco Perpetual European Smaller Companies since January 2004.
According to FE Analytics, Invesco Perpetual European Opportunities has been the fourth best performing portfolio in the IMA Europe ex UK sector since its launch with returns of 66.34 per cent, more than doubling the returns of the sector average in the process.
Performance of fund vs sector since December 2007
Source: FE Analytics
However, those returns haven’t been consistent as the fund has tended to struggle during periods of market weakness.
For instance, the fund fell 46 per cent in 2008 while the sector lost 24 per cent and in 2011 – when fears of a Eurozone collapse intensified – the fund, again, fell further than the market.
Nevertheless, Invesco Perpetual European Opps has performed very well when sentiment has turned more positive. In the rebound year of 2009, Bignell’s fund was the sector’s best performer with returns of 70 per cent, for example.
It was also the best performing fund in the sector last year with returns of 41.51 per cent.
Performance of fund vs sector in 2013
Source: FE Analytics
That return profile has damaged the fund’s capital preservation characteristics, however, as it has one of the worst downside risk and maximum drawdown score in the sector since it was launched.
Willis says that given the way in which the fund has performed in the past and due to the nature of the region it invests in, it is understandable that it hasn’t attracted swathes of investor inflows. However, he says it is a portfolio that investors should keep their eye on.
“The lion’s share of money in the European sector normally heads to the likes of Threadneedle, Jupiter and Henderson and his [Bignell’s] fund seems to under the radar.”
“It does tend to struggle when market falls but during rising markets this fund can really shoot the lights out,” Willis said.
“He has certainly had his purple patches in the past, but I’m quite surprised that his fund hasn’t gained much traction.”
“The likes of Threadneedle and Jupiter are good funds to hold and I think they will continue to be over the next 12 to 24 months, but when Europe actually starts growing again and risk appetite increases, a lot more could start going into it.”
Bignell is a value orientated manager and is not constrained by a benchmark, typically having a third of his portfolio invested in large caps, mid-caps and small-caps, respectively. The result of that, Bignell says, is that his approach is very active.
“Because of what I’m trying to do, my turnover does tend to be quite high,” Bignell explained. “I am constantly weeding out winners which mean that I should never be holding onto very expensive stocks. I am very valuation focused.”
As an example, Bignell says that one of the main reasons why he outperformed last year was because he had bought into cyclical and domestic facing stocks, such as car manufacturers, earlier than most due to their very depressed prices.
While that trade made his investors a lot of money, Bignell has already switched his portfolio into more defensive areas of the market, which is similar to the approach taken by Ed Legget and Thomas Moore at Standard Life.
“I’m a little bit more cautiously positioned now,” the manager said. “I think over the next six months or so will have more volatility and more questions will be asked about the strength of the macro recovery.”
“We have had downgrades over recent years, but at the same time equities have re-rated and markets have gone up. What that means is that it is quite expensive.”
“To go forward, we need the macro to deliver and earnings to come through because at the moment the macro is stalling and we haven’t had earnings upgrades.”
“I think we are still relatively cheap on 11 times [earnings], but in the short term there are risks considering where the VIX is and the issues in Ukraine. And then there is the real issue of deflationary pressures.”
Bignell says he has harvested his 2013 profits from high multiple growth stocks into more defensive areas of the market such as pharmaceuticals; for instance his largest holding is now Novartis because it is “focused on robust structural growth”.
Bignell also has a chunky 10 per cent of his portfolio in cash.
Performance of fund vs sector and index in 2014
Source: FE Analytics
His decision has certainly paid off so far this year as while the European equities have just managed to break even, Invesco Perpetual European Opps has been the sixth best performing fund in the sector with returns of more than 5 per cent.
The fund’s clean share class has an ongoing charges figure (OCF) of 0.95 per cent.
