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Grow through thick and thin with LF Miton European Opportunities

LF Miton European Opportunities has beaten broad indices and sector peers in good and bad markets
July 4, 2019

So far this year European equities have returned to form, but there is still plenty that could knock them off course. Slowing growth and an ageing population are big challenges for domestic economies in these regions while potential disputes, due to Brexit and escalating trade tensions with the US, threaten the region’s exporting businesses. But if you write off continental Europe you will forego the many successful companies listed on markets in this region, which over the decades ahead could continue to deliver strong returns – regardless of short-term political issues.

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

Good total returns 

Outperformance in good and bad markets

Diversified portfolio

Experienced managers

Bear points

Short track record

A good way to tap into such companies is LF Miton European Opportunities Fund (GB00BZ2K2M84), which over three years has returned 83.41 per cent, making it the top performer in the Investment Association (IA) Europe ex UK fund sector. It is also well ahead of FTSE Europe ex UK index, a broad benchmark composed of equities in listed in this region, which rose 49.24 per cent over three years.

Carlos Moreno and Thomas Brown, who have managed the fund since launch, invest in businesses on the basis of their positive attributes rather than because of external factors such as exporting trends – a useful strategy at a time of uncertainty. They seek businesses with strong brands or clear advantages that can grow their revenues, boost margins and increase their return on capital, and do not rely on external factors to achieve these things. The fund’s biggest positions include luxury car maker Ferrari (RACE:MIL) and speciality chemicals firm Sika (SIKA:VTX).

The fund’s investment process tends to exclude companies without a clear competitive edge so, for example, its managers often exclude airlines because this sector lacks high barriers to entry. They also look at who is running a company, favouring teams with a good track record of driving earnings growth by increasing market share, introducing new products or managing costs.

The fund is well diversified, with 51 holdings at the end of May, none of which accounted for more than 4 per cent of its assets. If European markets become volatile, the fund's diversity and focus on companies that do not rely on external drivers could help to mitigate its downside risk.

However, LF Miton European Opportunities only launched at the end of 2015, so it does not have a long track record. Although it has done well, it remains to be seen how it will do over the long term.

The fund has a multi-cap investment strategy and its managers favour small- and mid-cap equities, which are typically more volatile and higher risk than large caps. So, if you want broader, mainstream European equity exposure it would probably be better if you invested in a large-cap focused fund. 

But although LF Miton European Opportunities only launched three years ago, Mr Moreno and Mr Brown have invested in European equities for 23 and 18 years, respectively, and worked together for several years. The fund has also proved it can outperform in both good and bad market conditions. For example, in 2017, when Europe was one of the best-performing equity markets, the fund beat its sector average and the wider market. And when markets fell in 2018, LF Miton European Opportunities fell 4.2 per cent – less than FTSE Europe ex UK index's 9.08 per cent fall or the IA Europe ex UK sector average return of -12.16 per cent. 

Small and mid-caps also offer the potential for greater growth than large-caps.

So, if you want to tap into the potential growth European equities offer, and have a long enough investment horizon to ride out the potential volatility of small and mid caps, LF Miton European Opportunities still looks like a good way to consistently get the best out of European equities – regardless of any external challenges. Buy. DB

 

LF Miton European Opportunities Fund (GB00BZ2K2M84)
PRICE200.03pMEAN RETURN21.01%
IA SECTOREurope ex UKSHARPE RATIO1.54 
FUND TYPE Open-ended investment companySTANDARD DEVIATION12.18%
FUND SIZE£547.31mONGOING CHARGE0.94%
No OF HOLDINGS51*YIELD0.54%
SET UP DATE14/12/15*MORE DETAILSmitongroup.com
MANAGER START DATE14 December 2015  
Source: Morningstar as at 1 July 2019, Miton as at 31 May 2019.

 

Performance
Fund/benchmark6-month total return (%)1-year total return (%)3-year cumulative total return (%)
LF Miton European Opportunities26.7912.5583.41
FTSE Europe ex UK index17.959.749.24
IA Europe ex UK sector15.062.3538.95
Source: FE Analytics as at 28 June 2019

 

Top 10 holdings (%)
Homeserve3.9
Sika3.5
Ferrari3.4
Finecobank3.10
Interroll2.90
ASML2.80
Qiagen2.8
Adevinta2.7
Amplifon2.6
Temenos2.6
Source: Miton as at 31 May 2019

 

Geographic breakdown (%)
Nordics24.7
Switzerland17.0
Germany14.9
Italy14.4
France11.7
Netherlands7.3
UK4.2
Belgium2.7
Iceland1.9
Spain1.7
Other-0.5
Source: Miton as at 31 May 2019