Man GLG Continental European Growth, Marlborough European Multi-Cap and FP CRUX European Special Situations have generated some of the IA Europe ex UK sector’s strongest risk and return figures on a consistent basis over recent years, research by FE Trustnet shows. 
Weak economic growth and an overhang from the European debt crisis of 2011 meant that investors were cautious in their outlook for European equities for much for post-financial crisis period. However, this has changed more recently thanks to an improving macro picture and strong performance from European companies, attracting investors back to the region.
For the next article of this ongoing series, we have reviewed IA Europe ex UK funds for their five-year returns up to the end of 2017, the annual returns of 2017, 2016 and 2015, annualised volatility, alpha generation, Sharpe ratio, maximum drawdown and upside and downside capture relative to the sector average.
We have looked at the funds’ decile ranking for each of these 10 rankings and then worked out the average to reveal which funds have most consistently been among their very best of their peer group for a wide range of return and risk measures.
Performance of fund vs sector and index over 5yrs to the end of 2017
Source: FE Analytics
Man GLG Continental European Growth came out on top after achieving an average decile ranking of 1.9 and a total return of 150.88 per cent over the five-years in question. The £1.3bn fund is in the IA Europe ex UK sector’s top decile for five-year performance, returns in 2015, alpha generation, maximum drawdown, Sharpe ratio, upside capture and downside capture.
Managed by European equity veteran Rory Powe, the five FE Crown-rated fund is built around a concentrated and high conviction portfolio; Powe is committed to the growth style of investing and focuses on stocks that have scope to expand their multiples through earnings and cash flows or are in a position to preserve their price/earnings multiples.
Holdings in the portfolio are split into two categories: ‘established leaders’, which have dominant market positions and clear medium-term growth objectives; and ‘emerging winners’, or high growth names offering returns in excess of 15 per cent annually. Its largest overweights include Irish budget airline Ryanair, Italian sportswear and lifestyle brand Moncler and Danish bioscience company Christian Hansen.
Analysts at The Adviser Centre, which gives Man GLG Continental European Growth a ‘recommended’ rating, said: “The lessons learnt over many years mean that the outright pursuit of growth stocks is tempered by an assessment of the sustainability of their growth and their valuation. Equally, balancing the ‘emerging winners’ stocks with ‘established leaders’ is recognition of the need to moderate the potential volatility of an outright growth portfolio.”
As the table below shows, FE Alpha Manager David Walton’s £391.2m Marlborough European Multi-Cap fund comes in close second after also posting a 1.9 average decile ranking but achieving a slightly lower total return of 146.91 per cent. The five FE Crown-rated fund is top-decile for five-year performance, returns in 2015 and 1016, volatility, maximum drawdown, upside capture and downside capture.
FundCalibre analysts said: “The fund offers access to much smaller companies than many of its peers. These businesses are often overlooked and hence have the potential to outperform. The manager has been very successful at mitigating the risks that are typically associated with smaller companies. The team are seen as experts in small-cap investing, having built a stellar track record in this space.”
Source: FE Analytics
In third place with an average decile ranking of 2.2 is FE Alpha Manager Richard Pease and James Milne’s £2bn FP CRUX European Special Situations fund. It’s 111.6 per cent five-year return puts it in the second decile but the five FE Crown-rated fund is in the peer group’s top decile for alpha generation, annualised volatility and Sharpe ratio.
Pease has around three decades of experience in managing European equities and uses a bottom-up process that concentrates on four factors: companies’ business models, management teams, financial situations and valuations. Top holdings at the moment include German property investor Aroundtown, UK facility services firms ISS and information provider RELX.
Looking at the sector in terms of assets under management and its largest member – the five FE Crown-rated Jupiter European – also comes out well. FE Alpha Manager Alexander Darwall’s £5bn fund sits in fourth place out of 89 IA Europe ex UK members after scoring an average decile ranking of 2.5. Darwall has a quality growth approach, which has been in favour during recent years.
Three of the five largest funds are index trackers and are further down the rankings. The £4bn SSgA Europe ex UK Equity Tracker is the peer group’s second-largest member but has a score of 6.9, putting it in 69th place; the £3.6bn iShares Continental European Equity Index (UK) fund has an average decile ranking of 6.8 while the £3.1bn L&G European Index Trust scored 6.6.
When it comes to the next largest active funds, Threadneedle European Select has a 4.6 average decile ranking, BlackRock European Dynamic achieved 2.8 and Invesco Perpetual European Equity scored 4.8.
Performance of fund vs sector and index over 5yrs to the end of 2017
Source: FE Analytics
The chart above shows the five-year returns of the fund that has come in last place in this research. Scottish Widows European Select Growth has an average decile ranking of 8.5 after posting bottom-decile numbers for five-year returns, performance in 2015, alpha generation, maximum drawdown, Sharpe ratio and downside capture.
The bottom five funds are completed by MFS Meridian Continental European Equity (with an average decile ranking of 8.4), Scottish Widows European Growth (8.3), Legg Mason IF Martin Currie European Equity Income (8.2) and Aberdeen Global European Equity Ex UK (8.1).