It’s been tough to make money in European markets over the last five years and few fund managers have managed such a feat. If the global market collapse post Lehmans in 2008 wasn’t enough of a challenge for them to overcome, European markets have come under renewed pressure since the summer of 2011 with the eurozone banking crisis and the contagion effect this has had across the region. Fast-forward to 2012 and now it’s an issue with Greece and whether it will exit the euro. This headwind of events has made it almost impossible to see positive returns in a European equity fund over the last five years to 30 April 2012. But there are a handful of fund managers who have achieved this for their investors and that’s despite the MSCI Europe ex UK index being down 7.57% over the period and the FTSE World Europe ex-UK index down 2.12%.
If we take a look at the Morningstar Europe ex-UK Large-Cap Equity category, there are 295 fund share classes with a five-year history or longer, including investment trusts and exchange-traded funds. Within this, there are just 56 that made money over the last five years—that’s less than 19% of the category. Included in these 56 are three investment trusts (out of a possible six that invest in the category) that have delivered positive returns to their shareholders (on a NAV basis).
Leading the way among the investment trusts is Henderson Eurotrust (HNE), which has been run by Tim Stevenson since 1992. It’s a relatively small fund at around £120 million in assets and the level of gearing fluctuates considerably, from zero to nearly 10% at times. Over the five years to 30 April 2012, the fund’s NAV has risen 2.02%--not much, but notably better than the MSCI index’s loss of more than 7.5%. Stevenson has avoided financials for some time and his focus on high growth, quality companies in Northern Europe has been of benefit to his shareholders.
Hot on the heels of the Henderson fund is BlackRock Greater Europe (BRGE), run jointly by Sam Vecht and Vincent Devlin. This fund carries a Morningstar Analyst Rating of Silver. Vecht has been at the helm of this fund since September 2004 and in July 2008 he was joined by Vincent Devlin, formerly of SWIP, who joined the firm with Nigel Bolton and his team. This team has firmly established themselves at BlackRock; indeed, BlackRock European Dynamic and BGF Continental European Flexible lead the five-year returns table to end April 2012, with 10 of the top 25 performers at a share class level. At BRGE, gearing has also been used tactically so its level has varied a fair amount, from zero to low double-digit figures, although the latter is rare.
The third trust to give a positive return to its shareholders is Henderson European Focus (HEFT), although current manager John Bennett has only been in charge since January 2011 so much of this performance record was achieved by the trust’s former manager, Roger Guy. Guy used gearing actively in conjunction with his views on the markets; Bennett has a more cautious approach and is also relatively new to the management of a fund in an investment trust structure. However, his lengthy management experience in running hedge funds at GAM means gearing isn’t a wholly new concept. Indeed, his former charge GAM Star Continental European Equity is right behind HEFT in the performance tables, with most of that return being generated by Bennett in his tenure at that firm.
Out of just 56 share classes that made positive returns over the last five years in European large-caps, it’s encouraging to see that half of the investment trust universe is included comfortably in that list. The average fund in the Morningstar Europe ex-UK Large Cap equity category lost 1.88% over that same time period. What’s more, they don’t always bring higher risk: HNE has one of the lowest five-year standard deviations in the category, some 2.4 percentage points lower than the average category fund. Granted, there are very few European equity investment trusts but the fact that three of them are right up in the performance tables shows they deserve consideration for client portfolios.
