The thought of investing in Europe may turn your stomach, but to have a diversified portfolio you need a varied allocation, including some in Europe. It's not all bad there either: certain economies may be doing badly, but as a share investor, you are buying companies listed in Europe, some of which are doing very well on a worldwide basis, rather than these economies. The key is to pick the right companies and avoid risk, which is why a good fund and manager is crucial.
- Leading positive returns
- Capable manager
- Quality shares
- Little PIIGS exposure
- Can lag in rallies
One such fund is Threadneedle European Select, run by former Investors Chronicle journalist, Dave Dudding (read our interview with him). He doesn't just make the best of a bad area: as well as being well ahead of its benchmark FTSE World Europe ex-UK over one, three and five years, with solid positive returns Threadneedle European Select is also ahead of the FTSE All-Share over these periods.
The fund is also the top performing Europe ex-UK fund over three years, and among the top 10 performers over one and five years, recently earning it a place on discount broker Chelsea Financial Services' favoured list of funds.
Chelsea said it added the fund to its Core Selection list because the manager, David Dudding, has excellent stock-picking skills. Their note says: "He has showed this on his smaller companies fund and has transferred his skills to this mixed cap fund since taking it on in 2008. He turned the performance of the fund around almost immediately and has beaten the average fund each year since making the fund first-quartile again over all time periods. Throughout the European sovereign crisis the fund has done well for its investors and been a steady investment."
| IC TIP RATING | |
|---|---|
| Tip style: | GROWTH |
| Risk rating: | HIGH |
| Timescale: | LONG TERM |
Mr Dudding buys companies with a competitive advantage, high quality defensible earnings and consistent growth rates. His approach is growth orientated, but other factors such as brand loyalty or pricing power are also important. Consequently, he favours certain sectors and may avoid others, a notable example being financials where the fund is 8.6 per cent underweight the index.
But he mainly chooses companies because of their attributes rather than sector or economic considerations. He has virtually no exposure to the troubled areas of Europe known as the PIIGS (Portugal, Italy, Ireland, Greece and Spain). "This is because I am very biased to pricing power, so I am underweight a lot of the commodity stocks," he told Investors Chronicle. "Spain, meanwhile, has some of the biggest banks, telecoms and utilities, and I can't find the right stocks in these countries. The geographical allocation is a result of the stock-picking."
Valuations are an important investment consideration and he will not buy overvalued shares, and if a holding hits its price target the fund tends to sell it.
The fund has a fairly standard total expense ratio of 1.69 per cent, which in view of the excellent performance is very reasonable.
The portfolio is fairly concentrated with 47 holdings, of which around 80 per cent are in large-caps. Mr Dudding prefers this so he can know his holdings as well as he can to limit downside, though in theory a concentrated portfolio is riskier. But the fund is diversified by thematic exposure to ensure that any risk taken is managed and where possible reduced.
A bias to quality stocks means on rally days the fund may under perform a bit because it does not hold higher beta stocks. But with strong returns over longer periods, for both Europe exposure and a solid investment, this fund is a Buy.
THREADNEEDLE EUROPEAN SELECT Retail net Acc (GB0001529345) | |||
| PRICE | 159.67p | MEAN RETURN | 12.28% |
| IMA SECTOR | Europe ex UK | SHARPE RATIO | 0.75 |
| FUND TYPE | Open-ended investment company | STANDARD DEVIATION | 15.57% |
| FUND SIZE | £1.08bn | TOTAL EXPENSE RATIO | 1.69% |
| SET UP DATE | 31-Oct-86 | No OF HOLDINGS | 47* |
| MANAGER START DATE | 19-Jun-08 | MORE DETAILS | www.threadneedle.co.uk |
Source: Morningstar, *Threadneedle.
| Cumulative performance | Threadneedle European Select | FTSE World Eur Ex UK TR GBP | FTSE All Share TR GBP |
| 1 YEAR PERFORMANCE (%) | 18.85 | 11.18 | 15.2 |
| 3 YEAR PERFORMANCE (%) | 39.51 | -2.5 | 25.27 |
| 5 YEAR PERFORMANCE (%) | 25.98 | -7.57 | 8.65 |
Morningstar as at 28 September 2012
Top ten holdings as at 31 August 2012
| Holding | Percentage |
| Anheuser-Busch InBev | 6.4 |
| Nestle | 6.4 |
| Schneider Electric | 5.4 |
| Brenntag | 5.1 |
| Fresenius Medical Care | 4.9 |
| Sampo Oyj | 4.9 |
| Air Liquide | 4.7 |
| Svenska Handelsbanken A | 4.1 |
| Unilever | 4.1 |
| BASF | 4 |
Geographic breakdown as at 31 August 2012
| Country | Percentage |
| Germany | 23.6 |
| France | 20.4 |
| Switzerland | 17.2 |
| Sweden | 10.3 |
| Finland | 6.6 |
| Belgium | 6.4 |
| Netherlands | 5.1 |
| Denmark | 3 |
| Norway | 3 |
| Italy | 2.10 |
| Other | 1.40 |
| Cash | 0.90 |
Source: Morningstar
