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Tap into growth potential with Jupiter European

Jupiter European has made strong returns regardless of market conditions
July 5, 2018

Last month European equity markets experienced a bout of volatility after uncertainty over who would form a government in Italy and a change of government in Spain. Although markets have settled, political risk in recent years has been an ongoing issue in this region. However, if you have a long-term investment horizon and can ride out bouts of volatility, there is a wealth of good-quality companies listed on markets in Europe that have the potential to deliver strong, long-term returns. 

IC TIP: Buy at 2470.4p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Strong long-term performance regardless of wider conditions

Experienced manager

Corporate earnings improvement

Good global companies

Bear points

Short-term underperformance

"The recent softness in European earnings and macro data reflect a mid-cycle slowdown rather than the end of the economic recovery in Europe," says Dylan Ball, head of European Equity Strategies at Templeton Global Equity. "The strength of the euro in last year's third and fourth quarters choked off some of the earnings growth that we might otherwise have expected at the beginning of this year, as around 50 per cent of revenues in European indices are export-driven. But now renewed US dollar strength should allow Europe's earnings to recover."

A good way to tap into this potential improvement could be Jupiter European Fund (GB00B5STJW84), which invests in companies its manager Alex Darwall thinks are world class, and that can sustain profit growth and margins over the long term. He favours companies whose prospects are more dependent on their own entrepreneurial endeavour than factors beyond their control, and have unique products or services and a proven record of profitability.

When selecting the fund's investments Mr Darwall focuses on investing in good companies rather than taking a view on the European region. And as many of the fund’s holdings are successful globally rather than just in Europe, they are less likely to be affected by regional dynamics. So while a general improvement in European corporate earnings may be reflected by the fund's holdings, its prospects are not totally reliant on general market or economic conditions – as its strong returns over the years have proved.

Jupiter European is well ahead of its benchmark, FTSE World Europe ex UK index, over one, three, five and 10 years, over which periods it is among the four top performing funds in the Investment Association (IA) Europe ex UK sector.

"Alexander Darwall has delivered impressive levels of outperformance of the European market during his time at Jupiter," say analysts at Hargreaves Lansdown. "Our analysis suggests this is mainly due to strong stock selection, as well as sector and geographical positioning. The fund has also been one of the least volatile in its sector over the longer term."

Mr Darwall has run the fund since 2001 and worked at Jupiter since 1995.

Political shocks and economic uncertainty are likely to continue in Europe. So, even if the companies Jupiter European invests in are doing well, their share prices might experience sharp falls along with the rest of the market, affecting the fund's short-term returns.

The fund is fairly concentrated with only around 37 holdings, making it riskier and potentially more volatile, and it can experience tough years such as 2011 when it fell more than 12 per cent. And because Mr Darwall selects investments in an unconstrained way the fund can deviate from its benchmark's returns and lag in rising markets.

However, the fund has still delivered very strong long-term returns, and can do better than the index and its peers in falling markets. So if you have a long enough investment timeframe and high enough risk appetite to tolerate short-term volatility, and want to tap into potential European equity growth, Jupiter European Fund looks like a very good way to do it. Buy. LW

 

JUPITER EUROPEAN (GB00B5STJW84)
PRICE 2470.4pMEAN RETURN18.67%
IA SECTOREurope ex UKSTANDARD DEVIATION10.71%
FUND TYPE Unit trustNo OF HOLDINGS37*
FUND SIZE£5.48bnONGOING CHARGE1.03%
SET-UP DATE03/08/1987*YIELD0.39%
MANAGER START DATE31 January 2001**MORE DETAILSjupiteram.com
Source: Morningstar at at 3 July 2018, *Jupiter, **FE Trustnet.
Performance
Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)10-year cumulative total return (%)
Jupiter European Fund19.264.4107.2263.4
FTSE World Europe Ex UK TR GBP index2.540.365.1102.4
IA Europe ex UK sector average3.039.466.5115.4
Source: Morningstar as at 30 June 2018 

Top ten holdings as at 31.05.18 (%)

Wirecard9.9
Amadeus7.5
Novo Nordisk6.9
Relx6.9
Adidas6.4
Ryanair4.7
Dassault Systemes4.7
Grifols4.6
Deutsche Boerse4.6
bioMérieux4.1
Source: Jupiter

 

Geographic breakdown as at 31.05.18 (%)
Germany33.1
Spain12.2
France11.60
Denmark11.50
Netherlands7.40
Ireland4.70
UK4.20
Italy3.20
Norway3.20
Belgium3.10
Other3.10
Cash2.70
Source: Jupiter