Hargreaves Lansdown has removed Crux European Special Situations from its Wealth Shortlist, after losing patience waiting for Richard Pease to turn performance around.
Pease (pictured) launched the £580.8m fund in 2009, while he was at Janus Henderson, and took the mandate with him when he left to set up boutique outfit Crux Asset Management in 2014.
Hargreaves first added the fund to its then best buylist, the Wealth +150, in June 2015. It has remained one of the D2C giant’s ‘favourite funds’, surviving multiple overhauls to its buylist, including the latest rebranding to the Wealth Shortlist, following backlash from the implosion of the Woodford Equity Income fund.
Hargreaves said though Pease has built a long and successful track record investing in Europe, “our conviction around the fund’s performance and investment process has been tested in recent years”.
The demotion from Hargreaves is the latest blow to Pease’s fund, which was among the £10.7bn ‘dog’ funds named and shamed in Bestinvest’s Spot the Dog report.
Weak stock picking and deviation from process dent performance
Since launch, Crux European Special Situations has surged ahead of the Euro Stoxx, returning 191.6% versus the index’s gains of 113.7%.
But, in recent years, performance has been “lacklustre”, Hargreaves’ investment analyst Josef Licsauer noted. On a five-year view, the fund has returned a measly 1.9%, while the average IA Europe ex-UK fund is up 14.4%.
Licsauer said “weaker than expected” stock picking was partly to blame for the fund’s recent performance woes. Pease’s bets on medium-sized firms, particularly industrials, where he has historically added the most value, have now become the biggest detractors from performance.
On top of this, Hargreaves felt the team, which also includes co-managers James Milne and Roland Grender, has “at times deviated from their tried-and-tested four pillar investment process”.
The managers have the ability to invest up to 20% of the fund in companies outside Europe. However, Licsauer said some of these investments haven’t been aligned with the team’s ‘four pillars’, including quality of management, and had detracted from performance.
Crux acknowledges some mistakes have been made
“We’ve continued to speak with Pease and the team frequently about performance. They acknowledge some mistakes have been made and have taken action, for example, by selling companies they would not typically invest in and have sought to refocus on the core principles of their process,” said Licsauer.
“While this means the fund has the potential to do well in the future, our lowered conviction means we have decided to remove the fund from the Wealth Shortlist. We will continue to monitor performance and let investors know if our views change.”
A Crux spokesperson said performance had taken a hit “over the coming and going of Covid”. During the first year of the pandemic, the fund fell behind due to its deliberate lack of exposure to growth or “concept stocks”, due to their valuation discipline. And it missed out on some of the upside from the huge value rotation in 2021-2022, which chiefly benefitted deep value, such as energy stocks, which the fund is underweight.
“Both of these market climates were highly unusual and, in both cases, the fundamentals that we focus on were de-emphasised by investors; in particular return on capital: the loss-making Covid beneficiaries names never made a profit, and the value names almost by definition make a low return,” they said.
“As this unusual period draws to a close, the funds are beginning to see green shoots as investors once again look at resilient, well-run, capital-light business models.”
