View more on these topics

A sector under pressure- Europe excluding UK

Trouble ahead for Europe?

Against a backdrop of Brexit and high sovereign debt, European funds have had a problematic year

Brexit has been unavoidable for the past two years, dominating almost every aspect of British life. While the UK parliament has yet to vote on the deal (the original vote was 11 December but this has been postponed to an unknown date), approval of the proposed agreement remains uncertain. It is not just the UK which could be affected, but Europe as a whole.

Whether or not Brexit will spark a domino effect around the continent remains to be seen, although the likelihood seems low.

The true Brexit effect on European funds also remains to be seen as global markets have had a tough few months, but fund performance has been struggling over the past 12 months. The picture is different over a long-term period however.

Aside from Brexit, there have been other factors which have proved difficult to manage over the past few years. Greece still has the highest debt on the continent, with the country’s deficit sitting at 178.6 per cent of GDP. However, Italy has crept up in recent years and is currently at 131.8 per cent, Portugal’s debt sits at 125.7 per cent. The UK’s, for comparison, is 87.7 per cent, still one of the highest. Estonia has the lowest debt, amounting to just 9 per cent of GDP. Government debt for the eurozone currently sits at €12.5trn (£11.1trn).

Despite a challenging backdrop, over five years the average fund in Europe excluding the UK sector saw a 37.9 per cent return, but over the one year it is down to -8.6 per cent, as at 26 November.

The Investment Association requires to within the Europe ex UK sector to invest at least 80 per cent of their assets in European equities and exclude UK securities.

Funds can, however, invest up to 5 per cent (but no more) of the total assets of the fund in UK equities to allow flexibility for corporate actions.   

Declining sales
The sector, which has 120 constituent funds from 74 providers, is the fifth largest in terms of funds under management, totalling £63bn (its Europe including UK counterpart has just £2.5bn FUM).

The latest figures from the IA show that net retail sales for September this year were £-10.8m, its fifth consecutive month of outflows. August data shows outflows of £258m, July saw £138m outflows while outflows hit £303m in June. However, the year started off positively in sales terms, when January saw inflows of £220m. The entire Europe space (which comprises the Europe ex UK, Europe including UK and Europe Smaller Companies sectors) saw £58m outflows in September. 

Rocky performance
Looking at a longer term investment horizon, it is unclear what markets will bring after the March deadline, but what is clear is many investors will have made solid returns over the past five years. The top performer over the time period is the Marlborough European Multi-Cap fund. Seeing returns of 89.7 per cent, it is also the top performer over three years, returning 60.46 per cent (17.1 per cent annualised).

Returns over one year tell a completely different story. In the 12 months to 26 November, just two funds saw positive returns, the Jupiter European (2.5 per cent return) and the Comgest Growth Europe ex UK fund (0.8 per cent). On a short-term investment, just the Polar Capital European (ex UK) Income fund saw a return over six months (0.3 per cent).

Funds in focus

Digging deeper into the funds

Stockmarkets have been under immense pressure in the last few months and funds in the Europe excluding UK sector have certainly not been immune. Here is a closer look at a selection of funds from the sector.

Largest fund: Jupiter European

Launch date: July 1987

Manager: Alexander Darwall

Fund size: £5.5bn

Asset split:

1 Germany 33.1%
2 Spain 12.9%
3 France 11.6%
4 Denmark 11.5%
5 Netherlands 7.5%

About: A concentrated portfolio of between 30 and 45 companies, this fund looks to invest for the long term and the management team seeks companies whose prospects depend as far as is “reasonably possible” on their own entrepreneurial endeavour and not on factors beyond their control.

Run by one of Jupiter’s longest-serving fund managers, it invests in expertise rather than taking a view on the geopolitical region and is not reliant on macroeconomic trends.

 

Top performer over five years: Marlborough European Multi-Cap

Launch date: May 1986

Managers: David Walton and Will Searle

Fund size: £400.3m

Asset split:

1 Sweden 17.1%
2 France 14.3%
3 Italy 10.7%
4 Money market 9.4%
5 Spain 8%

About: This fund invests predominantly in “transferable securities” of European listed and/or European domiciled companies.

It may at any time (at the managers’ discretion) use derivatives and forward transactions for efficient portfolio management.

The top performer over three and five years, the managers use a bottom-up process and analyse all 3,500 companies listed in Western Europe and keeps a focus list of 250 as potential investment opportunities. From then, the portfolio is constructed of more than 100 stocks.

Longest-running fund: Axa Rosenberg European

Launch date: February 1983

Managers: Gideon Smith and Cameron Gray

Fund size: £17.4m

Asset split:

1 France 20.5%
2 Germany 17.8%
3 Switzerland 15%
4 Spain 9.1%
5 Netherlands 8.6%

About: This fund aims to achieve medium- to long-term capital growth on a three- to five-year basis using the MSCI Europe ex-UK index as a benchmark.

As per its top holdings, the fund invests in well-known European large-caps such as Roche, Nestle, Siemens and L’Oréal, but also invests in medium-sized firms. The investment team says it believes fundamentals, especially future earnings and the price paid for them, drive equity returns.

Most volatile over five years: Neptune European Opportunities

Launch date: October 2010

Manager: Rob Burnett, until end 2018, Thomas Smith to take over in 2019

Fund size: £308.7m

Asset split:

1 Germany 28%
2 France 15.5%
3 Italy 11.9%
4 Spain 9.6%
5 Netherlands 9.4%

About: This fund has seen positive returns over three- and five-year periods.

Managed by Neptune’s investment director and head of European equities, the fund invests in between 40 and 60 “undervalued companies with strong growth potential”, but the manager has freedom to rapidly adjust the portfolio in line with prevailing market conditions.

Most changes to top 10 holdings over one year: Schroder European Alpha Plus

Launch date: October 2003

Manager: James Sym

Fund size: £316.8m

Asset split:

1 France 20.9%
2 Spain 13.5%
3 Germany 12.5%
4 Norway 9.1%
5 Switzerland 9%

About: According to FE market movements data, this fund has changed the most within its top 10 holdings over the past year. But this may not necessarily be a negative, given the current market conditions.

New additions to the top 10 include Spanish telecoms giant Telefonica and insurers Axa and Grupo Catalana Occidente. The fund typically holds between 35 and 60 companies in which the manager has a high conviction the share price does not reflect the prospects of that business.

Recommended

1

FCA fines focus on individuals as average penalty jumps

The FCA has turned the focus of its fines from companies to individuals in 2018, latest data suggests. An analysis from law firm Clyde and Co shows that while the total value of fines levied by the regulator in the year to date has dropped sharply compared to 2017, the average amount individuals are being […]

Fixed-Income-Portfolio-Coins-Pounds-Growth-700x450.jpg

Fixed income outlook 2018

With much speculation about the challenges faced by bond investors in 2018, RLAM’s Head of Fixed Income, Jonathan Platt offers his outlook for all areas of the fixed income market in our brief video. Watch the video here: Past performance is not a guide to future performance. The value of investments and the income from […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com