Selectors quell European equity capacity concerns

Last week, Investment Adviser revealed Barings was set to soft close its £1.5bn Europe Select fund in May following significant growth in the portfolio’s assets.

Rod Aldridge, the firm’s head of Emea wholesale distribution, said: “It’s a key product for us and one where we have had success in terms of growing the assets, which have tripled in the last five years.

“We regularly review capacity across our whole product range, and we thought it was prudent to manage the inflows as assets rise.”

While soft closures can help managers to run their portfolios effectively, these measures can also create difficulties for fund selectors seeking holdings with strong performance.

Asset allocators remain confident about the choice of European equity funds available, however.

Darius McDermott, managing director of Chelsea Financial Services and an investor in the Barings fund, said the soft closure announcement had prompted him to seek alternatives but did not represent a broader problem.

Mr McDermott, who is assessing a European offering from Mirabaud Asset Management, said the Investment Association’s (IA) Europe ex UK sector was “awash with quality fund managers”.

“It is right to look at capacity, but in the European and UK Income sectors there are more than a dozen quality managers you can look to,” he explained.

“Barings made the right decision to soft close, as they are looking to control the flows. It’s a small- and mid-cap strategy that was relatively niche, and the decision was grown-up.”

Funds in the IA Europe excluding UK sector, and in Europe more generally, have proved popular with investors.

In January, European equity sectors stood out with net retail sales of £291m, at a time when the remaining equity sectors suffered combined net retail outflows of £249m.

In 2015, funds focusing on Europe enjoyed net retail sales of nearly £4.5bn according to the IA, making up more than half of the £8.4bn in net inflows to equity funds.

Meena Lakshmanan, head of investment solutions at Vestra Wealth, is also unconcerned about this sector, and does not believe the Barings soft closure is evidence of a “blanket issue”.

She noted that the BlackRock European Dynamic fund, for example, had soft closed in 2013 before reopening the following year.

“Good funds may have [capacity] issues but there are other [European] funds that have seen net outflows so I’m not sure this is going to be a blanket European issue,” she said.

“Also, while Europe and Japan were popular at the end of 2015, given how the market is going, I am not convinced these overweight positions will continue in 2016.”