This European Growth and Income fund offering from Capital Group, launched in October 2002, is run by portfolio managers David Riley, L Alfonso Barroso and Mark Denning.
According to Martyn Hole, investment specialist at Capital Group, the £158m fund seeks to achieve long-term growth of capital and income by investing in companies domiciled or with their main place of business in Europe. He adds: “The focus is on identifying companies that are not merely the best in Europe, but also among the best in the world. Preservation of capital is also a priority, making the fund a conservative investment option for long-term investors.”
“Our high-conviction investment process has been developed from first-hand, intensive global proprietary research and is designed to capture and continually evaluate our best ideas,” says Mr Hole. The group has 75 investment analysts based in offices around the world, 45 of which have European coverage, working in partnership with portfolio managers.
He adds: “Our portfolio managers gather insights from analysts and, in conjunction with their own fundamental research and company visits, choose their highest-conviction European ideas. The strength of our research enables us to include a number of mid-cap stocks, rather than simply the most obvious large-cap names. Portfolio managers are benchmark agnostic and have the flexibility to invest where they see the best opportunities.”
Each manager selects securities independently of other portfolio managers, which helps to diversify the portfolio holdings. Macroeconomic factors are also considered – the investment process combines ‘on the ground’ research with comprehensive macro analysis, says Mr Hole.
The fund is ranked at level six on a risk and reward profile, placing it at the riskier end, while ongoing charges of 0.99 per cent apply to the Z clean share class.
Mr Hole points to an increased exposure to utilities in the past year. “Managers added to holdings in the Finnish utility Fortum, the UK’s National Grid, Energias de Portugal (EDP) and GDF Suez in France. Our exposure to utilities is quite high relative to the sector benchmark,” he says. “Energy exposure remained below the benchmark throughout the year, which contributed to relative results. With several larger-risk positions in companies that will see earnings enhancement from lower energy costs, the portfolio should benefit if energy prices stay subdued.”
The fund boasts top quartile performance in the Investment Association Europe including UK sector over one, three, five and 10 years, according to FE Analytics. In the 10 years to February 12, it generated an impressive 131.78 per cent return to investors, compared to the 106.65 per cent sector average. In the past 12 months to the same date, the fund delivered a highly respectable return of 10.07 per cent, against the sector’s 4.25 per cent average.
Mr Hole says the consistent long-term results can be attributed to strong stock selection in the industrials, utilities and consumer staples sectors, particularly in the past year. He adds: “Our exposure to the telecommunications sector weighed on results as we were underweight there (and we still are, because our long-term view is that it’s still early days in Europe). Stock selection in the consumer discretionary sector was also a small drag on relative results.
“The fund also received a refund from the French government relating to withholding tax levied on French equity holdings in prior years, which benefited portfolio returns.”
Ryanair was 2014’s top contributing stock, as rising passenger numbers helped the airline increase its full-year profit forecast by 20 per cent. Finnish utility Fortum – the Nordic region’s second-largest power operator – also made a notable contribution, says Mr Hole. “The company is divesting itself of part of the regulated distribution grid in Sweden. Higher-than-expected dividend distribution helped the stock’s momentum, as the shares rose 14 per cent in 2014.”
He notes that the fund is positioned this year for company-specific growth in areas such as healthcare. “The portfolio is currently less exposed to financials because of concerns about an increasingly restrictive regulatory environment. But over time, you may see us become more involved in the cyclical areas of the market, which are looking quite attractive.”
EXPERT VIEW
Ben Willis, investment manager and head of research, Whitechurch Securities
This fund has a solid track record and delivers an attractive yield in excess of 4 per cent. However, it will have limited appeal in the UK. Domiciled in Luxembourg, the fund has a pan-European focus. More than a third of it is invested in UK equities and only 50 per cent in European equities. Most allocators prefer to separate UK and European equities within a portfolio, so the fund has limited appeal for me.
