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Tap into potential earnings growth with FP CRUX European Special Sits

FP CRUX European Special Situations Fund has demonstrated strong returns in different market conditions
December 14, 2017

After years of sluggish growth, continental Europe is in the midst of a sustained economic revival. Unemployment is at the lowest level since 2009, and business and investor confidence in the region is coming back.

Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Experienced manager

Outperformance

Good risk/reward profile

Exposure to Europe's recovery

Bear points

Possible volatility

The positive economic backdrop could mean European corporate earnings grow by up to 15 per cent next year, according to Columbia Threadneedle Investments. "Confidence is high, business is buoyant and jobs are being created at an impressive pace," says Mark Burgess, deputy global chief investment officer at Columbia Threadneedle. "Continued robust performance across the euro area is aided by strong manufacturing data and demand, while domestic consumption – a key factor for ongoing growth – has been boosted by rising employment numbers and improving household balance sheets."

A good way to tap into Europe's earnings growth potential is FP CRUX European Special Situations Fund (GB00BTJRQ064), which aims for long-term capital growth by investing in companies in special situations. The fund is managed by James Milne and Richard Pease, who has built an impressive track record during his three decades of investing in European equities. According to research company FE Trustnet, Mr Pease has delivered a cumulative total return of 136.9 per cent over 10 years, compared with 79.6 per cent for a composite of his peer group.

FP CRUX European Special Situations is in the first quartile of the Investment Association (IA) Europe excluding UK sector in terms of performance over one, three and five years. During these periods it has also outperformed the FTSE World Europe excluding UK Index. 

FP CRUX European Special Situations has an attractive risk/reward profile with a three-year Sharpe ratio of 1.6. The Sharpe ratio measures how much return a fund generates for each amount of risk it takes, and any figure above one is a good score.

The fund's managers seek to invest in high-quality businesses that are undervalued and hold them for the long term. They look for companies that have little debt, strong balance sheets, management teams with a proven track record, pricing power and high barriers to entry in the areas they operate in.

The fund is largely unconstrained and its managers often take large-conviction positions. It can invest in companies of all sizes, although typically has a mid-cap bias. Currently around 50 per cent of the fund is in companies with a market cap of between €1bn (£0.88bn) and €10bn.

Germany is its largest country exposure, accounting for 23.2 per cent of assets, followed by Sweden at 13 per cent and the Netherlands at 11.8 per cent. 

The fund's managers aim to keep trading activity to a minimum so that transaction costs eat less into its returns. However, they have recently increased activity because they are seeing more opportunities in companies that have the characteristics they like. For example, in October they topped up Deutsche Borse (DB1X.N:GER), a transaction services provider, and France-listed flooring specialist Tarkett (TKTT:PAR) and Spie (SPIE:PAR), which provides multi-technical services in the areas of energy and communications.

Despite good long-term returns, over shorter periods the fund's performance can be volatile. For example, in 2015 and 2016 it made returns of 13.2 per cent and 21.4 per cent, respectively, but in 2011 it lost 14.2 per cent and in 2014 it only made 1.7 per cent. 

And the economic recovery in Europe may peter out or fail to translate into higher corporate earnings, which could mean the fund's returns suffer.

However, historically this fund has held up in downturns and outperformed in rising markets. And despite difficult years it has made good returns more often than not, which has translated into strong, positive cumulative total returns. 

Mr Pease's extensive European equities experience, meanwhile, suggests that he is well placed to find investment opportunities regardless of market conditions.

So if you want strong growth over the long term and the opportunity to exploit any earnings improvement in Europe, FP CRUX European Special Situations' experienced management team, quality focus and stockpicking record make it a solid bet. Buy. EA

 

FP CRUX European Special Situations Fund (GB00BTJRQ064)

PRICE281.9p3-YEAR MEAN RETURN18.21%
IA SECTOREurope excluding UK3-YEAR SHARPE RATIO1.6
FUND TYPE Open-ended investment company3-YEAR STANDARD DEVIATION10.3%
FUND SIZE£1.94bnONGOING CHARGE0.86%
No OF HOLDINGS62*YIELD1.46%
SET UP DATE01/10/2009MORE DETAILSwww.cruxam.com
MANAGER START DATERichard Pease: 01/10/2009; James Milne: 08/06/2015  

Source: Morningstar as at 11/12/17. *Crux Asset Management as at 31/10/17

 

Performance

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)
FP CRUX European Special Situations23.361.9112.1
FTSE World Europe Ex UK index 22.142.388.0
IA Europe ex UK sector average21.144.488.9

Source: Morningstar as at 08/12/17

 

Top 10 holdings as at 31/10/17 (%)

Aroundtown3.4
ISS3.4
Wolters Kluwer3.0
Bureau Veritas2.9
Sika2.8
Aurelius2.7
Relx2.7
Huhtamaki2.6
Securitas2.5
Kion2.5

Source: Crux Asset Management

 

Sector breakdown as at 31/10/17 (%)

Commercial & professional services21.7
Capital goods17.5
Software and services9.7
Materials7.9
Pharma and biotech7.5
Banks7.0
Diversified Financials5.3
Food, beverage and tobacco4.1
Real estate3.4
Insurance2.2
Cash4.9

Source: Crux Asset Management