Gross domestic product (GDP) growth for the European Union increased by 0.5 per cent in the first quarter of 2017 - more than double the US rate - and manufacturing and private sector job figures suggest the region has turned. The stocks listed on this region's exchanges, meanwhile, remain among the cheapest in developed markets.
- Good long-term performance
- Low UK allocation
- High-conviction manager
- Europe relatively cheap
- Can underperform in value rallies
- Higher ongoing charge
A good way to access this area is Jupiter European Fund (GB00B5STJW84), run by Alexander Darwall, who has proven stockpicking skills and a stellar performance record. The fund has returned 208.2 per cent over 10 years, far surpassing the Investment Association (IA) Europe ex-UK sector average of 79.6 per cent and its benchmark, FTSE Europe ex-UK index, returned 81.9 per cent. Jupiter European has also beaten its sector average and benchmark index over five and three years.
Mr Darwall invests in high-quality companies underpinned by long-term trends such as shifts in consumer behaviour or technological advances. He looks for profitable companies that are likely to be able to sustain higher than average growth rates and margins, and avoids those likely to be affected by short-term political or sentiment shifts. He likes stocks with a competitive edge able to command pricing power, for example by producing something unique, and has a preference for companies that make products that are in constant demand.
The fund has a large weighting to healthcare stocks, which account for nearly a quarter of its assets, and its top 10 holdings include Bayer (BAYER:BUD) and Novo Nordisk (NOVO B:CPH), which respectively account for 5.6 per cent and 7.5 per cent.
The fund's largest holding is Anglo-Dutch information provider RELX (REL), which accounts for 8.6 per cent of assets.
Mr Darwall is a high-conviction investor with a low portfolio turnover, and he runs a concentrated fund that currently has just 34 holdings. His long-term approach has a record of success throughout different macroeconomic climates, and taking large bets on individual stocks has helped him deliver benchmark-beating returns.
Research company FundCalibre says: "Mr Darwall has developed a real aptitude for recognising patterns of success in company business plans and management teams. This skill, combined with his patient and value-aware approach, has seen Jupiter European become a top European fund since he has been managing it."
Jupiter European should also insulate investors against the impact of political uncertainty stemming from Brexit talks and the outcome of the recent UK general election as it only has a small allocation to the UK, of 4.9 per cent.
Mr Darwall's strong style bias means that if value stocks outperform he is unlikely to beat the FTSE World Europe ex UK index. This has happened recently with the fund underperforming as a result of investors rotating back into value stocks in the second half of 2016. And if interest rates rise across the eurozone, value stocks may continue to outperform quality growth.
The fund's ongoing charge of 1.03 per cent is also higher than some of its peers, which typically have a charge of under 1 per cent. Mr Darwall also tends to invest in stocks with relatively higher valuations.
But Jason Hollands, managing director at Tilney Group, says: "[The fund] seldom invests in cyclical areas such as banks or commodities, so had a tougher 2016 as these parts of the market rallied, but the longer-term record since Mr Darwall began managing the fund in 2001 has been stellar."
The fund's very strong returns have more than compensated investors for the slightly higher charge.
And stocks with relatively higher valuations should prove to be more profitable, with higher growth rates than stocks on what appear to be more appealing price/earnings ratios. Holdings stocks with higher valuations has worked well over the long and medium term, as evidenced by the fund's performance.
So if you want exposure to Europe's turnaround, shares on better valuations than the US or UK, and a manager who delivers top outperformance over the long term, regardless of economic conditions, then Jupiter European seems like the answer. Buy.
JUPITER EUROPEAN (GB00B5STJW84) | |||
---|---|---|---|
Price | 2151.45p | 3-year mean return | 16.99% |
IA sector | Europe Excluding UK | 3-year Sharpe ratio | 1.32 |
Fund type | Unit trust | 3-year standard deviation | 11.59% |
Fund size | £4.39bn | Yield | 0.44% |
No of holdings | 34* | Ongoing charge | 1.03% |
Set-up date | 3 August 1987* | More details | jupiteram.com |
Manager start date | 1 February 2001 |
Source: Morningstar, as at 20.06.17 & *Jupiter
Performance
1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | 10-year cumulative total return (%) | |
---|---|---|---|---|
Jupiter European | 35.4 | 62.1 | 139.8 | 208.2 |
FTSE World Europe ex UK index | 41.0 | 38.5 | 115.1 | 81.9 |
IA Europe Excluding UK sector average | 38.0 | 40.2 | 117.7 | 79.6 |
Source: FE Analytics, as at 20.06.17
Top 10 holdings (% of assets)
RELX | 8.6 |
Novo Nordisk | 7.5 |
Wirecard | 7.3 |
Amadeus | 5.7 |
Bayer | 5.6 |
Ryanair | 5.6 |
Deutsche Boerse | 4.8 |
Dassault Systemes | 4.5 |
Grifols | 4.4 |
Ingenico | 3.8 |
Source: Jupiter, as at 31/05/17
Geographic allocation (% of assets)
Germany | 25.7 |
France | 13.6 |
Denmark | 13.5 |
Spain | 10.1 |
Netherlands | 9.2 |
Ireland | 5.7 |
United Kingdom | 4.9 |
Italy | 3.3 |
Norway | 2.3 |
Sweden | 2.1 |
Other | 3.2 |
Cash | 6.5 |
Source: Jupiter, as at 31/05/17
IC Tip rating | |
Tip style | Growth |
Risk rating | High |
Timescale | Long term |