During the past five years, European equities have lagged their global peers as investors have shied away from a region dominated by concerns surrounding the euro, monetary policies, political events and economic growth. 
More recently, European equities have witnessed a bear market in 2011, relatively bull market conditions in 2012 and 2013, and a stagnant market in the following two years.
This has made the past half-decade challenging for investors in European equities and while the sector has not been the worst performer over the period - that accolade belonging to emerging markets - it has failed to keep pace with global equities.
Performance of indices over 5yrs
Source: FE Analytics
As the above graph shows, the MSCI Europe ex UK index (80.59 per cent) has underperformed the MSCI World (114.75 per cent) by 34.16 percentage points over the period.
This appears to be the case heading into 2017 as well, with next 12 months will likely be dominated by key political events on the continent.
General elections in France, Germany and the Netherlands, a constitutional referendum in Italy and the triggering of the Article 50 exit clause by the UK government are likely lead to increase uncertainty.
While this has undoubtedly been a testing time, those investors looking for a truly diversified portfolio will still want to have European exposure however.
Below FE Trustnet looks at the European funds that have beaten the MSCI World index over the past five years, despite the difficulties faced in Europe – though we must of course stress that previous performance is not a guarantee of future gains.
Over the past five years, six funds in the IA Europe ex UK sector have produced greater returns than the MSCI World index.
Source: FE Analytics
The biggest outperformer has been the five crown-rated Man GLG Continental European Growth fund run by Rory Powe.
Over the period the fund has returned 161.01 per cent to investors, the best in the sector, and has been a top quartile performer over one, three, five and 10 years.
The portfolio is concentrated, containing 31 stocks, and the manager invests with high conviction: the top 10 holdings, including Pandora, Ryanair and Yoox Net-a-porter, representing more than half of the portfolio.
Compared to its underwhelming MSCI Europe ex UK sector, the £526.2m fund is particularly underweight banks (9.87 per cent), which have endured a torrid time in Europe over the past five years, and 10.06 per cent overweight to consumer durables and apparel such as Pandora.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fund has beaten the sector by 75.29 percentage points over the past five years and the benchmark by 80.42 percentage points, as the above graph shows.
In the short-term, however, the fund has been a below average performer, sitting in the third quartile over one, three and six months.
In the fund’s latest factsheet, Powe wrote: “In our search and preference for high quality and strong European companies, we must be prepared for periods of underperformance, either because of off-target stock selection or market disillusionment with stocks with sustainable growth characteristics.”
“Our efforts will be focussed on keeping the former to a minimum while taking advantage of the latter to reinforce our holdings in names with the highest conviction.”
The largest fund to outperform the MSCI World index over the past five years has been the Invesco Perpetual European Equity, run by Jeffrey Taylor.
The £1.6bn fund invests primarily in shares in companies in continental Europe, although it may include other Europe-related investments.
Taylor said: “Our strategy rests primarily on rigorous fundamental analysis and company valuations, combined with a close scrutiny of the macroeconomic context, to identify what we believe to be the best investment ideas in continental Europe.”
In contrast to the Man GLG fund, Taylor’s largest weighting is to the financial sector, with 11 percentage points more than the index, with insurance giant Allianz and banking firm ING among its top 10 holdings.
Over the period the fund has returned 117.54 per cent to investors, squeaking ahead of the MSCI World by 2.79 percentage points, but 36.95 percentage points ahead of its own MSCI Europe ex UK benchmark, as the below shows.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Also of note is the five crown-rated FP CRUX European Special Situations fund, run by FE Alpha Manager Richard Pease which has beaten the MSCI World index by 99 basis points.
The £1.3bn fund uses the manager’s best stock ideas and as a consequence, country and sector positions are likely to be driven by the stock selection process.
Square Mile Research said: “This fund is about identifying and investing in good quality businesses that are cash generative, possessing an edge that their competitors find difficult to assail and run by management teams with proven track records.”
“Intuitively this seems an attractive strategy but very few managers have the experience and ability to apply the process with sufficient rigour to ensure success.”
“This, together with the fund's mid-cap bias and the growth tilt, can lead the fund to looking and behaving very differently to the index.”