Top 100 Funds 2019: Europe

NEW ENTRANT: BlackRock European Dynamic (GB00BCZRNN30)

Three of our panellists – Mr Lowcock, Mr Seager-Scott and Mr Liddell – suggested adding BlackRock European Dynamic. This fund has an outstanding long-term performance record and is well ahead of broad European indices and the IA Europe ex UK sector over, three, five and 10 years.

It has been run by lead manager Alister Hibbert since 2008 who has two decades of investment experience, and co-manager Giles Rothbarth since February this year.

“Alister Hibbert is a brilliant and long-standing manager who is supported by a well-resourced team at BlackRock,” says Mr Seager-Scott. “Although he primarily invests in high-quality growth names, he is pragmatic and takes advantage of other opportunities as they arise. He has a strong track record of rewarding investors who can tolerate his higher octane style.”

The fund can experience bouts of volatility so you should have a higher risk appetite and, as with all our Europe fund suggestions, a long-term investment horizon if you invest in it.

Mr Lowcock adds: “Manager Alister Hibbert primarily uses a bottom-up approach to unearth companies with earnings that are significantly higher than the market [average] over the medium to long term, where it is not factored into the share price. He has a flexible approach to investing so also looks for restructuring and turnaround situations where appropriate while taking into account wider economic risks. He does not have a specific style, and his go-anywhere approach is reflected in the portfolio, which has typically moved between large-cap value and growth.”

FP CRUX European Special Situations (GB00BTJRQ064)

FP CRUX European Special Situations has an outstanding long-term record of beating its benchmark, FTSE World Europe ex UK index, and the IA Europe ex UK sector average. Its short-term numbers do not look so good because it underperformed these benchmarks in 2018 and so far this year, a reminder that this fund can undergo periods of volatility.

“The track record over the very long term has been impressive with the manager's stock selection skill complemented by his typical preference for investing in higher-risk, but higher-return, medium- and small-sized European companies,” says Mr Morgan.

It is run by highly experienced manager Richard Pease, who has more than three decades of investment experience, alongside James Milne.

Janus Henderson European Focus (GB00B54J0L85)

Janus Henderson European Focus lagged FTSE World Europe ex UK index and the IA Europe ex UK sector average in 2016 and 2017, albeit with double-digit positive returns. But performance improved last year so that it was ahead of its sector average, and so far this year it has beaten both these benchmarks. Perhaps more importantly, prior to 2016 the fund had a fairly consistent record of beating these two benchmarks.

[The fund’s manager] John Bennett's pragmatic approach means he considers the overall macroeconomic environment and sector trends, as well as the criteria of individual companies – a style that has led to strong performance since his tenure began in 2010. “We like that [Mr Bennett’s] team is structured in such a way that it can focus on the areas where it can add most value, and invest early enough in a stock – and with enough conviction – to maximise the investment opportunity," comment analysts at FundCalibre. "The team believes in the power of mean reversion and Janus Henderson European Focus will typically have a bias towards contrarian investing as a result. It is important for the team to identify a catalyst and ‘investing in change’ is a crucial part of the process.”

The fund is fairly concentrated with only 39 stocks at the end of July. This increases its potential for returns, but also risk and volatility.

Schroder European Alpha Income (GB00B6S00Y77)

Schroder European Alpha Income’s cumulative returns do not look good, but this is largely due to underperformance of FTSE World Europe ex UK index and the IA Europe ex UK sector average in 2017, 2018 and so far this year. The fund launched in 2012 and in the four following calendar years outperformed these two benchmarks, at times by a considerable margin, so we think it is worth waiting for longer to see if it returns to form.

Part of the reason for the underperformance is the manager, James Sym’s, value investment approach – investing in companies whose share price he thinks doesn’t reflect their future prospects – and not owning growth and defensive stocks that have recently done well.

Although this is an income fund we include it in our equity growth selection because it has made very good total returns. Growth investors could reinvest the dividends by holding the accumulation share class.

Barings Europe Select Trust (GB00B7NB1W76)

Barings Europe Select has beaten EMIX Smaller European Companies (ex UK) Index over one, three, five and 10 years, and is in the top quartile of its sector in terms of performance over one, three and five years. Its managers focus on smaller companies, investing at least 75 per cent of its total assets into the ones that fall into the bottom 30 per cent of total market capitalisation in Europe.

“Barings Europe Select is run according to a growth at a reasonable price basis,” comment analysts at FundCalibre. “The [lead] manager, Nicholas Williams, looks to buy growth stocks at the right price, rather than buying cheap stocks, so the fund will tend to underperform in momentum markets, when stock fundamentals are less important.”

This fund has soft closed to new investors but is still available from a number of investment platforms because they offered it before the soft close, so are considered to be existing investors.

FUNDS DROPPED

Jupiter European (GB00B5STJW84)

Jupiter European has an outstanding record of outperforming FTSE World Europe ex UK index and has been one of the best-performing European equities funds. However, Alexander Darwall, who has managed the fund since 2001, is stepping down as manager by the end of the year and its management will be taken over by Mark Nichols.

Most of the panel members who reviewed the open-ended IC Top 100 funds felt that Jupiter European should be dropped for the time being.

“Alexander Darwall’s expertise was the key driver of the performance of the fund,” says Mr Lowcock. “I would remove it from the list.”

He feels that there is a need to monitor how Mr Nichols will perform before adding money to it. Jupiter funds are run very much according to their manager’s approach rather than a house style, so when they leave the company their former fund won’t necessarily be run in the same way. However, Jupiter said that Mr Nichol’s “process and active style of investment management will ensure continuity as well as consistency with the Jupiter investment culture”.

Mr Nichols was co-manager of Threadneedle European Select Fund (GB00B8BC5H23) between 2016 and 2019, which has a good record. But a lot of this is attributable to Dave Dudding who has managed that fund since 2008.

Between November 2011, when Mr Nichols became manager of BMO Select European Equity Fund (GB00B4Q7SF31), and April 2019, he returned 122 per cent across the different funds he has run, against a 205 per cent return for Mr Darwall over that period. The IA Europe ex UK fund sector average was 120 per cent over this period, and MSCI Europe ex UK index rose 114 per cent.