Lower volatility strategies in Europe have been the place to be for investors over the last decade, with funds including Jupiter European, Stonehage Fleming European All Cap Equity and Threadneedle European Select providing top-quintile returns with lowest-quintile volatility.
However, there are still some top performing funds for those looking to take on a bit more risk, with Invesco Perpetual European Opportunities and Man GLG Continental European Growth achieving top-quintile returns with highest-quintile volatility.
Over the last decade the MSCI Europe ex UK index has underperformed the wider global equities MSCI AC World benchmark 80.49 percentage points as the below chart shows.
Performance of indices over 10yrs
Source: FE Analytics
This is because the period in question has been a tumultuous one for European equities compared to the rest of the world.
Indeed, it not only incorporates the financial crisis of 2008 but also the European Sovereign Debt crisis of 2012 and the year of political uncertainty in 2016 when France and Germany held general elections and the UK voted to leave the European Union.
As such, even the fund with the lowest volatility has had a lumpier return profile than that of the MSCI AC World global equities index.
However, the lower volatility bucket of funds is where investors had the highest of chance of making strong returns, according to the latest FE Trustnet study.
Indeed, when taking the top and bottom quintile (20 per cent) of the IA Europe ex UK sector for volatility the less-volatile funds have on average returned 33.98 percentage points more.
Five of the 15 funds in the top quintile for volatility have made top-quintile returns over the past decade with the best performer being the five FE Crown-rated Jupiter European, which has returned 297.33 per cent – tops in the sector overall for the period.
Run by FE Alpha Manager Alexander Darwall, the £5.8bn fund invests in companies with long-term growth potential regardless of the economic backdrop.
His quality-growth style has been in favour over the last decade as investors have sought more defensive assets with bond-like characteristics but analysts at FE Invest noted that the fund has exceeded the returns expected from the style tailwind.
“Darwall has built up an impressive track record in European equity investing, and this strategy and style of buying high-quality global companies has now weathered a number of market environments, they said.
“It is also reassuring to see that value has been added, by successful company selection, over and above that which we would expect from just buying a general basket of these types of companies.”
Darwall is joined on the list of low-volatility funds by fellow Jupiter fund managers Cedric de Fonclare and Gregory Herbert, who run the Jupiter European Special Situations and Jupiter European Income respectively.
The valuation-focused, £866m Jupiter European Special Situations has made a second-quintile return of 132.73 per cent despite the style struggling for much of the last decade. Jupiter European Income is in the third quintile having produced 112.31 per cent for investors over the period.
Table of top quintile volatility funds over 10yrs
Source: FE Analytics
The next-best performer on the list is the £139m Stonehage Fleming European All Cap Equity fund run by FE Alpha Manager Robrecht Wouters.
The fund has returned 256.54 per cent whilst experiencing volatility of 16.62 per cent over the last decade. It is managed by JO Hambro Capital Management for clients of family office Stonehage Fleming and is not available on the major platforms.
Five crown-rated Threadneedle European Select is another top quintile performer in the table above, having returned 212.06 per cent over the last decade.
The £3.1bn fund, managed by FE Alpha Manager David Dudding since 2008 with Mark Nichols joining him in 2016, has done so with volatility of 14.94 per cent – the lowest in the sector.
It is a large-cap growth portfolio with the likes of consumer brands owner Unilever, analytics company Relx and drinks maker Pernot Ricard its top three holdings.
Rounding out the top-quintile returners with top-quintile volatility is Simon Rowe and Marc Schartz’s five crown-rated Janus Henderson European Growth fund, which has returned 188.65 per cent to investors over the last decade.
Conversely, Newton Continental European and Liontrust European Income have made bottom-quintile returns with top-quintile volatility.
Turning to the other end of the volatility spectrum, Invesco Perpetual European Opportunities has been a strong performer among those in the bottom quintile for volatility over a 10-year period.
The fund has returned 157.38 per cent over the last decade with volatility of 21.22 per cent – the second-highest in the sector.
Adrian Bignell manages the £73m fund alongside deputy Matthew Perowne and looks for companies with an effective business model, dominant market position or a successful restructuring story.
It has a high allocation to oil & gas currently (24.71 per cent) with the financials, industrials and healthcare sectors also making up double-digit weightings of the portfolio.
Table of bottom quintile volatility funds over 10yrs
Source: FE Analytics
The best performer in the table above however is the five crown-rated Man GLG Continental European Growth fund.
The £1.6bn fund has been managed by Rory Powe since 2014, although it has had a number of managers over the period and has returned 276.68 per cent – the second-highest in the sector.
Unlike some of its peers, the fund is overweight countries including Denmark, Italy, and Ireland and has a more than 5 per cent weighting to US stocks.
While there were no funds in the table that sat in the second quintile for returns, nine of the above 15 funds sat in the fourth or fifth quartile.
Barclays Europe (ex-UK) Alpha the worst performer, up just 70.31 per cent over the last decade with volatility of 19.35 per cent.
The most volatile fund in the sector has been the HSBC GIF Euroland Equity, which has seen 21.4 per cent of standard deviation while producing a bottom-quintile return of 96.08 per cent.