European stocks have been battered year to date – fears of a global recession, banking scandals and the oil price have all dragged on markets. But despite those headwinds, it is not all gloom. In fact, there is enough evidence to suggest cyclical forces are still supportive with unemployment falling at its fastest pace since 2007, auto sales are recovering, credit growth improving and consumers’ major purchase intentions are close to their highest level since early 2001. Moreover, the latest PMIs and regional and industrial country survey data all remain at solid levels.
3 Largest European Equity Funds
It is interesting to note that funds with the largest assets under management have also been amongst the best performing funds over the last three- and five-years, outperforming most of their Morningstar category peers. The funds have also been highly rated by our analysts, having held Silver ratings for a number of years.
With nearly $5 billion in its coffers, the Henderson Gartmore Continental European fund benefits from a highly experienced and talented manager. John Bennett built a strong track record at GAM before taking over this fund in February 2010. He takes a high conviction approach and the portfolio is characterised by large stock, sector and country bets.
The JOHCM Continental European fund has provided investors with a remarkably consistent performance profile over time. Paul Wild took over as the sole manager of the fund in April 2010. He uses his top-down views on sectors to search for stocks that fit these views within the European equity universe, making his lengthy investment experience key to the approach.
It is interesting to see a tracker in this list of largest funds; BlackRock ISF Europe ex-UK Index Flexible. This may reflect the greater awareness of investors to the cost of investing in actively managed funds and hence becoming more attracted to low-cost options, such as index funds. Investors may also have lost patience with actively managed funds which, as a group, have found the heightened market volatility that has been evident in recent years to be a headwind to the achievement of consistent outperformance. The Europe ex UK sector differentiates itself in this regard though, as the average fund in the Morningstar Europe ex UK Large-Cap Equity category has significantly outperformed the MSCI Europe ex-UK index over the last one, three, five and 10 years on an annualised basis.
3 Best Performing Europe Funds
Some of the funds on this list have consistently been amongst the top performers, and have also consistently featured in the list of largest funds by assets, namely BGF Continental European Flexible, Henderson Gartmore Continental European and JOHCM Continental European. Also on the list are funds that have benefitted hugely from small- and mid-cap tilts to their portfolios.
The BGF Continental European Flexible fund is an unconstrained, relatively high-turnover portfolio of 35-65 stocks. The manager, Alister Hibbert, has been in charge since March 2008 and isn’t afraid to take large bets at both the stock and sector levels. He favours companies with strong franchises, run by quality management, and with earnings potential underestimated by the market. This fund is rated Silver by Morningstar; we believe the manager is well-equipped to run this punchy strategy and he also benefits from the strong, experienced equity European team at BlackRock, as well as the firm’s sophisticated risk management tools.
Despite holding a Negative Morningstar Analyst Rating, LO Funds - Eurozone Small & Mid Caps, has performed strongly over the last three-years relative to the broad market index. However, returns in the context of the fund’s opportunity set of Eurozone small- and mid-caps have been disappointing and it has lagged its Morningstar peer group over the last three- and five-year periods.
The fund managers, Xavier LaGrandie and Michel Leblanc invest in small- and mid-cap value-oriented companies whose market cap is between €200 million - €10 billion. The managers apply quant screens using value metrics to narrow down the investment universe and follow that through with fundamental analysis.
Digital Stars Europe ex-UK is run through a proprietary quantitative process that was developed by Dr Jacques Chahine, the founder of J. Chahine Capital, the fund’s investment manager. The fund is invested in stocks with a market-cap of at least €100m, although the fund’s average market cap is significantly higher than that and the portfolio is heavily tilted towards mid-caps. Relative to its peers in the Morningstar Europe ex-UK Small/Mid-Cap Equity category the fund has delivered solid returns over the last three- and five-year periods.
A version of this article appeared in International Advisor magazine
