The nominations are in for the sixth annual Morningstar European Fund Manager of the Year Awards, with winners to be announced at a gala ceremony following the opening day of the Morningstar Institutional Conference in Amsterdam on 19 March.
The nominations, like the awards, are difficult to come by. We give only three of these awards in Europe each year: European Equity Fund Manager of the Year; European Global Equity Fund Manager of the Year; and European Fixed-Income Fund Manager of the Year. The winners of these awards are nominated and selected by Morningstar’s team of qualitative fund analysts across Europe. The analysts put funds through a rigorous evaluation using our Five Pillars methodology, which weighs the quality of management, the strength of the process used to run the fund, the quality of the parent organisation—including how it treats investors in its funds—performance, and costs.
Although nominated managers should have had a strong 2014, that is far from sufficient qualification unto itself. They should also have done well for investors over longer time periods and must have been rated by our analysts as Morningstar Medallists—meaning the analysts have recognised the fund with a Gold, Silver or Bronze Morningstar Analyst Rating.
European Equity Fund Manager of the Year
Manager: Michael Fraikin, Thorsten Paarmann and the Invesco Quantitative Strategies Team
Nominated for work on: Invesco Pan European Structured Equity
The team behind this fund is exceptionally strong. Lead managers Michael Fraikin and Thorsten Paarmann are part of a group, Invesco Quantitative Strategies, that features more than 40 experienced professionals who continuously develop and refine the quantitative methodologies that are at the heart of this fund’s stock-selection approach. The team’s breadth and experience is key to our confidence here. The approach does not focus on low volatility as such, but aims to identify the most attractive low-volatility stocks by systematically applying a quantitative selection approach based on fundamental and behavioural insights. Return forecasts are driven by a variety of factors, including earnings momentum, price trends, management action, and relative value. Therefore, the strategy comprises low-volatility stocks that are deemed attractive alongside selective higher-volatility opportunities, resulting in a truly active “best ideas” portfolio.
With this approach, in place since September 2006, the team has built an outstanding record of outperformance. Indeed, the returns of Invesco Pan European Structured Equity are among the best in the Morningstar Europe Large-Cap Blend Equity Category, while it has been one of the least-volatile offerings in the category and displayed superior resilience in difficult market environments, including 2008 and 2011, making this fund easier for investors to stick with through a market cycle. The fund’s success, however, has not been limited to down markets, as evidenced by its showing in 2014 when it delivered top-decile returns, bolstered notably by good stock-selection results across most selection criteria. Quantitative strategies are susceptible to strong trend reversals (as was the case in 2009), but the consistency of returns across different market cycles is testament to the quality of the team’s work here.
Manager: John Bennett
Nominated for work on: Henderson European Selected Opportunities, Henderson Gartmore Continental European, Henderson European Focus and Henderson European Focus Trust
Fund manager John Bennett has continued to put his deep knowledge of European equities to excellent use, wedding a well-founded investment philosophy with a pragmatic investment approach that he has executed consistently and successfully through time. He spent 17 years at GAM running European equity money and delivered excellent returns across different market cycles before joining Gartmore (now Henderson) in 2010 and taking over the Henderson European Selected Opportunities fund that year. Over the five years ended 31 December, Bennett (at the helm for all but the first month of the period) has guided the fund to a top-quartile return relative to its Morningstar Europe ex-UK Large-Cap Equity Category peers.
The manager’s process is diligent and robust. He pays close attention to macroeconomic and sector trends as he believes an understanding of the global market and industry dynamics gives him valuable insights into the prospects and behaviour of European companies. He is also acutely aware of the potential for mean-reversion in stock markets and he therefore looks for contrarian trades. Bennett backs his views with conviction, with the fund often showing large deviations from the benchmark in terms of sector and country positioning. Although this adds an element of relative risk, he has so far used this risk well, as evidenced by the fund’s risk-adjusted returns over his tenure.
Despite a turbulent 2014, Bennett was still able to outpace his average rival in the Morningstar Europe ex-UK Large-Cap Equity Category, sealing the year with a top-quintile ranking. The fund’s longstanding overweight in health care strongly aided returns. This is a positon that the manager has held since he took over the fund, founded on his view that cost-cutting initiatives and the increase in the rate of drug approvals should bolster the free cash flow levels of pharma companies, which have seen their trend P/E ratios decline to levels last reached a decade ago. The fund’s underweight in materials and excellent stock-picking within consumer discretionary also boosted performance.
Manager name: Alexei Jourovski and his team
Nominated for work on: Uni-Global Equities Europe
Alexei Jourovski is a highly experienced investor who has been with Unigestion since 2001. He was appointed head of Unigestion’s equity team in 2010. Such stability epitomises Unigestion’s culture. Jourovski and his team are responsible for implementing a rigorous investment process based on quantitative optimization techniques designed to produce a diversified portfolio with the lowest possible volatility. The team’s qualitative inputs are critical in this fund’s success. They constantly seek small improvements in the strategy, which are all guided by a desire to better control risks. The team includes seven managers and five analysts under Jourovski’s leadership. We appreciate the gradual strengthening of this team as assets under management have increased. This is, in our opinion, an illustration of Unigestion's strong stewardship. As team leader, we also think Jourovski plays a key role in disseminating the shop’s strong values. Those values are exemplified by policies such as investing a portion of manager bonuses in fund shares that vest over time. Although fund houses will be required to do this soon, Unigestion was ahead of the curve in applying this fundholder-friendly policy.
Such a combination of strong investment disciplines and shareholder-focused values have resulted in a very good track record over the long term, with superb down-market resilience. In 2011, for example, the fund rose 2.88%, compared with a loss of 11% for the average fund in the Morningstar Europe Large-Cap Blend Equity Category. Yet, as you would expect from such a risk-conscious approach, it is not designed to outperform in all market conditions and generally lags in strongly rising, indiscriminate markets. In 2014, however, with risk aversion on the rise and more dispersion in the market, the fund clearly outpaced its peers, benefitting by capturing only 60.5% of the category’s average downside, but 105% of the upside. That’s the long-term pattern, too, with the fund capturing just 58% of the category’s downside over the past 10 years and 81% of its upside.
Global Equity Fund Manager of the Year
Manager name: Vincent Strauss and Wojciech Stanislawski
Nominated for work on: Comgest Growth Emerging Markets, Magellan
Vincent Strauss and Wojciech Stanislawski are veteran emerging-markets investors, having managed emerging-markets equity portfolios at Comgest for more than 20 and 15 years, respectively. Such stability is a hallmark of that fund house, whose investment approach is characterised by a very high level of consistency. It is best summarised by “quality” and “growth”, in that order--a combination applied across the shop’s fund range that has proved particularly effective to navigate turbulent emerging markets. Strauss and Stanislawski have never departed from their stringent investment criteria. This has sometimes proved challenging, in particular during momentum-driven markets when their strategy is most likely to underperform. Over time, however, this has produced one of the most compelling risk/return trade-offs in the Morningstar Global Emerging Markets Equity Category. Last year was no exception; their funds ended up comfortably in the top quartile as the strategy proved highly rewarding during the second half of the year when volatility surged. Strauss and Stanislawski are not only great investors; they are also fantastic stewards of investors’ capital. As such, they have never hesitated, for instance, to discourage investors from entering their funds when they thought emerging markets were ahead of themselves.
Manager name: Jeremy Podger
Nominated for work on: Fidelity Global Special Situations
Jeremy Podger only became manager of this fund in March 2012 following the departure of Jorma Korhonen and interim management by Sudipto Banerji. However, Podger arrived at Fidelity with a strong track record as a global equity manager. Under his management, both the Threadneedle Global Select and the Investec Global Free Enterprise fund outperformed peers.
On taking over, Podger changed the process to one of his own design and has applied it consistently. He aims to identify companies that fall into at least one of the three categories he defines as “special situations”: exceptional value, unique business or corporate change. Podger’s balanced approach should enable the fund to perform well in a variety of market conditions.
The strong combination of Podger’s tried-and-tested methods and Fidelity’s large analytical resource has yielded strong results so far. Outperformance since he took over has been driven by sector allocation and stock selection. Regional allocation has also contributed positively as have the small number of short ideas (pair trades) overall. Performance was good in 2014, comfortably ahead of both its index and the Morningstar Global Large-Cap Blend Equity Category thanks to multiple performance drivers.
Manager name: Charles F. Pohl & Team
Nominated for work on: Dodge & Cox Worldwide Global Stock
This team is relatively new to Europe, but they’re an extraordinarily experienced group that has been plying the same investment process on their US-domiciled vehicles with great success for many years. Indeed, Pohl’s tenure at the firm goes back to 1984, while the shortest tenure at the firm among the seven-member unit behind this fund dates back to 2003. As with all of their equity offerings, the team ply a patient, low-turnover value-oriented approach. Backed by rigorous fundamental research, they are often willing to wade into unpopular names, including beaten-down financials in the heat of the crisis (the US-domiciled version of this strategy launched in 2008) and beleaguered tech titan Samsung Electronics more recently. In 2013, they nibbled away at India’s ICICI Bank and benefitted from its rebound in 2014.
The managers’ approach means that investors here should be prepared to wait out difficult periods as they wait for their picks to prove their value case. However, the team’s experience and process have more than delivered over time. The European-domiciled fund features top-decile returns over the past three- and five-year periods, including a 10th-percentile finish in 2014. We also note that Dodge & Cox generally keeps costs low and this fund is no exception, with an ongoing charge of just 0.70%.
European Fixed-Income Fund Manager of the Year
Manager name: Philippe Igigabel
Nominated for work on: HSBC GIF Euro High Yield Bond
Philippe Igigabel has an exceptional tenure on HBSC GIF Euro High Yield Bond, having served as the fund’s co-manager from 2000 before taking over as lead portfolio manager in 2003. He thus boasts one of the longest individual track records in the European high-yield space. Igigabel applies a high-conviction approach that is best illustrated by the fund’s overweight in subordinated financial issues, initiated in 2009. At that time, Igigabel believed that although many of these bonds were BBB-rated, their spreads compared with the risk-free rate were as wide as those of lower-rated issues, and should therefore be expected to narrow significantly over time. The manager stood behind this approach even in periods when it was out of favour, such as 2011, which enabled investors to fully reap the fund’s long-term benefits: Over three-, five- and 10-year periods to the end of January 2015, the fund ranks in its category’s top quartile. In 2014, a difficult year for high-yield investors given the market sell-off during the third quarter, the fund outpaced 90% of its competitors. The manager’s preference for better-rated issuers and the quality of his picks in the financials and telecom sectors were fully rewarded. In addition to his excellent long-term performance record, Igigabel demonstrates above-average stewardship through his personal investments in the fund, which strengthen the alignment of his interests with those of investors.
Manager name: Jean-Philippe Munch
Nominated for work on: HSBC GIF Euro Bond
Jean-Philippe Munch manages several euro diversified bond mandates at HSBC, in which he leverages the expertise of a cohesive team of 23 portfolio managers, specialised in government, inflation-linked and corporate bonds. The average experience, quality and stability of this team are very distinctive, as several of the portfolio managers, including Munch, have been working together for many years at HSBC. We are equally impressed by the quality of the fundamental analysts at the team’s disposal, who are heavily involved in the investment process. Munch has demonstrated his ability to use these resources effectively to deliver incremental and regular outperformance over time, including in challenging market conditions. He has outperformed the Morningstar EUR Diversified Bond Category each year since taking over the fund’s portfolio in 2008, without excessive risk-taking, as evidenced by the fund’s stellar risk-adjusted record (5-star Morningstar Rating as of January 2015). Over the period, he has also succeeded in outpacing the Barclays Euro Aggregate Bond index, an achievement that is rare enough in the euro diversified bond space to be highlighted. The strategy shone again in 2014, outperforming its peers by 2.77 percentage points (in EUR terms), on the back of successful security selection in hybrid corporate names and an overweight in government bonds versus corporate bonds in Spain and Italy. This success testifies to Munch’s experience and exceptional ability to leverage HSBC’s diverse fixed-income capabilities.
Manager name: Richard Klijnstra & Team
Nominated for work on: Kempen (Lux) Euro Credit (not available for sale in the UK)
We hold Kempen’s Euro Credit Team in high regard given its stable core and its demonstrated ability to consistently outperform its peers and benchmark. Lead manager Richard Klijnstra brings over 16 years of relevant experience to the table, while the other members of the fund’s investment committee, Alain van der Heijden and Rik den Hartog, have been with Kempen for almost their entire career. Additional support comes from four dedicated managers/analysts. Each member carries direct responsibility for the portfolio. The team is cohesive and a good mix in terms of experience and backgrounds. We furthermore like the fact that all team members personally invest in their own fund and are highly cognisant of the need to align their interests with those of their investors.
The investment process is pretty straightforward but makes sense and is solidly constructed. The managers aim to deliver outperformance by taking on small, diversified bets through a conservative approach within a limited risk budget. Nevertheless, the manager doesn’t fear to take on contrarian positions, as was the case in 2009, when his overweights in subordinated financials and asset-backed securities worked out positively. We think very highly of the quality of execution.
Since May 2008 the team has delivered value to its investors by consistently outperforming both the benchmark (Iboxx EUR Corporates) and the category average with favourable risk metrics. In so doing, they have managed to generate alpha across a broad range of performance drivers both in down and rising markets through both beta positioning and bond selection across diverse sectors. On a risk-adjusted basis the fund ranks in the category’s top quintile on a five-year basis. In 2014 it outperformed both the benchmark and the category average, benefitting from positive beta positioning across sectors and strong security selection.
The winners in each of the three categories will be announced on Morningstar.co.uk on the evening of March 19th.
