Threadneedle European Smaller Companies has been the best performing European fund since the introduction of the euro just over 20 years ago, making 1,268.92 per cent over this time.
Performance of fund vs sector and index since 1 January 1999
Source: FE Analytics
The prototype European Currency Unit (ECU) finally gave way to the creation of the euro on 1 January 1999, although it was a further three years before the notes and coins began circulating in physical form.
“In many ways, this was the crowning achievement of the EU political project and had been achieved only with significant argument and division along the way, led ironically by the UK, which was destined never to take part,” said Olly Russ, head of European income at Liontrust.
Threadneedle European Smaller Companies is comfortably ahead at the top of the table over this time, beating the second-placed fund by close to 400 per centage points.
Best-performing European funds since 1 Jan 1999
Source: FE Analytics
The performance is no flash in the pan either, and the fund holds the record with two others – T. Rowe Price European Smaller Companies Equity and Standard Life Investments Europe ex UK Smaller Companies – for beating its IA European Smaller Companies sector in the highest number of calendar years over the past decade, at eight.
The fund’s FE Alpha Manager Mark Heslop has a quality growth style, favouring growing companies with high returns and competitive advantages such as brands that will enable them to sustain those returns.
“Our main focus in managing this portfolio is stock selection, informed by macroeconomic and thematic views,” he said.
“We favour companies that have a competitive advantage and pricing power generated by brands, patented processes, regulatory barriers to entry and strong market positions.”
Heslop has headed up the fund for just over five years of the successful 20-year stint, with David Dudding, who now manages Threadneedle European Select, in charge for most of this time. However the analysts at Bestinvest pointed out that Heslop has maintained the fund’s strong track record during his tenure.
“Heslop is part of a team of four specialising in European small-caps and also benefits from the support of the wider European team which includes Dudding – the fund has a similar approach and shares some stocks with Dudding’s Threadneedle European Select product,” they said.
The £450m fund has ongoing charges of 0.88 per cent.
In second place with gains of 888.07 per cent is the Barings Europe Select Trust. Manager Nicholas Williams, who has been in place since the start of 2005, selects companies that have strong finances, management with a clear strategy and, most importantly, a catalyst for growth that provides potential for price appreciation.
“Fundamental analysis includes setting price targets at which a fund would be sold on profit, or reviewed, or maybe even sold at a smaller losing level,” said FE Invest.
“The team places an emphasis on meetings with company management to ensure that its interests are aligned with those of investors. This results in a portfolio of around 100 names, with a bias for medium-sized companies.”
However, the team said the value added by the manager and process is relatively low in comparison to the large risks of investing in smaller companies.
“Investors must be willing to hold the fund through periods of extended losses if they are to benefit from the long-term returns on offer,” it added. “It is for this reason that the fund could sit well alongside a more traditional European equity fund, focused on larger companies, in a portfolio.”
The £1.5bn fund has ongoing charges of 0.8 per cent.
Seven of the 10 best-performing European funds over the period have a focus on small-caps, which is unsurprising given it was the fourth best performing sector in the Investment Association universe over this time, with an average gain of 589.46 per cent.
IA Europe ex UK and IA Europe inc UK are 15th and 16th on this list respectively over this time with gains of 219.19 and 218.23 per cent. This is just ahead of the IA Global sector, which made 206.37 per cent. Top of the list is IA China/Greater China with gains of 830.64 per cent.
The best-performing fund on the list that doesn’t have a smaller companies focus is Jupiter European, in fourth place, with gains of 733.84 per cent.
However, while its manager Alexander Darwall has headed up the fund for the vast majority of the 20-year period, he will step down by the end of the year to be replaced by Mark Nichols, the current co-manager of Threadneedle European Select.
At the other end of the scale, the worst performing fund over this time is GAM Multistock Europe Focus Equity, whose gains of 55.85 per cent are barely above inflation. It describes itself as “a feeder fund” of GAM Star European Equity, saying it aims to deliver attractive risk-adjusted returns using a fundamental, bottom-up investment approach. It has not been helped by ongoing charges of 1.76 per cent.
Worst-performing European funds since 1 Jan 1999
Source: FE Analytics
The Aberdeen-managed IFSL Trade Union Unit Trust is the second-worst with gains of 80.98 per cent. Its ultimate owner is the TUUT Charitable Trust, whose sole purpose is to provide donations to charities supported by the trade union movement. The fund has 60 per cent invested in the UK.
Merian European Equity (ex UK) is the third worst with gains of 129.73 per cent.
Technically speaking, funds focused entirely on the UK count as European as well. Taking these into account, the best performer since the introduction of the euro is Marlborough Special Situations, up 2,938.11 per cent.