Page 46 - DIY Investor Magazine - Issue 23
P. 46

Graham Bentley Fundscape
Despite the government’s attempts to extricate the UK from the EU membership, as investors we remain inextricably linked to our continental neighbours.
A typical 60% equity mixed asset portfolio might feature 10% exposure to European (ex-UK) equities, so managers have had plenty to play for as Gatekeepers have continued to tick the European box on their asset allocation list.
Fund selectors clearly have their favourites: FP Crux European Special Sits (28, +5 since last quarter), BlackRock European Dynamic (28 picks), BlackRock Continental Europe Income and handful of Quilter funds.
These funds have certainly produced performance beyond their benchmarks for a number of years; however they’re all fishing in the same pond, in the sense that the ex-UK benchmarks they reference – FTSE World Europe, Developed Europe and MSCI Europe – are heavily biased towards the largest companies from 14 countries, with a median capitalisation of around €5bn.
the same benchmark and are therefore often focused on the same companies, making it difficult to produce the excess returns that differentiate performances and demonstrate value versus the active fee premium charged.
Of Gatekeepers’ favourites, the standout performer from this group is Jupiter. Its European fund is fifth for three- year returns and 7th over one year. None of the other gatekeepers’ favourite funds are in the top ten funds for one or three-year returns.
Of course, experience tells us that there are funds
that are contributing significant alpha with regularity,
but whose brands may be less familiar as they have
less marketing clout. The European ex-UK sector is no exception. LF Miton European Opps (6) is a £500m fund focused on 50 stocks, with a bias towards medium- sized companies. It has delivered the highest cumulative alpha over one and three years of all the funds in this sector and yet it’s still not getting much action from gatekeepers.
Meanwhile, other less well-known brands that have historically delivered strong numbers have fared less well in 2018.
For example, Marlborough’s European Multi-Cap fund (6) saw its strong bias towards smaller companies penalised in 2018, due to a number of factors that may have rather less to do with company fundamentals.
Passive adherents recognise this which is why Vanguard’s Developed Europe ex-UK tracker has gathered 14 picks, but sits just outside the top 10.
The fact that the fund has comparable returns relative to the sector average over one and three years, demonstrates that in the round managers are sharing
DIY Investor Magazine | Oct 2019 46

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