The average fund in the IMA Europe Ex UK sector has climbed 12% so far this year (to 13 June), a stronger performance than UK All Company and UK Equity Income funds.
The strongest performers over three years include some of the best-established and largest funds. These include the £2bn Threadneedle European Select fund, managed by David Dudding since July 2008, which is a high-conviction portfolio focusing on high-quality growth firms that have a strong competitive advantage and a ‘defensible’ earnings profile.
The Alister Hibbert-led BlackRock European Dynamic has also proved incredibly popular with wealth managers, with recent strong performance pushing it up to the £1.7bn mark.
Adrian Lowcock, senior investment manager at Hargreaves Lansdown picks out three more names in contention both as alternatives to Cazenove European (to be taken over by Steve Cordell) and as core holdings on the continent.
He favours Schroder European Alpha Plus, headed up by Leon Howard-Spink, who he says does not want any one style bet to dominate performance.
Pricing power
Lowcock explains: “His key barometer of a company is pricing power. He is looking for companies that dominate their market or their close competitors if they are going to take over the top spot. He looks for growth companies which are growing at a rate ahead of GDP i.e. structural growth with good balance sheets and return on capital.”
Lowcock also picks out Henderson European Special Situations fund, run by Richard Pease, who anticipates investors could be in for a bumpier ride than many expect. Pease’s selection criteria is high-quality management, niche products and high barriers to entry, so the company’s market share cannot be easily eroded by new competitors. He seeks businesses who have continued to grow market share in their specialist niches.
In common with Rice, Argonaut European Alpha fund’s Barry Norris, who last week hit the headlines with his views on gold, pays very close attention to the economic cycle.
“[Norris] is only interested in buying into areas with healthy earnings growth potential and in strong relative earnings momentum,” Lowcock adds.
“He believes owning world-class international companies with good visibility of earnings should be an excellent long-term strategy.”
New choices
Elsewhere, Mark Hinton, senior fund analyst at Allfunds Bank, is interested in some of the newer and smaller funds in the sector, including the £31m Artemis European Opportunities, which has been managed by Mark Page and Laurent Millet since October 2011. Page certainly has the pedigree – his previous fund, LV= European Ex-UK Growth fund, was the only fund in the IMA sector to outperform its index in each year from 2004 to 2010.
Another BlackRock fund of note is its Continental European Income Fund, managed by Andreas Zoellinger and Alice Gaskell.
Says Hinton: “In the 12 months to end of March 2013, this multi-cap fund has outperformed the index by 780bps and demonstrating the value of high-quality, low-volatility strategy especially during times of political instability.”
