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Europe rarely gets clients excited. It doesn’t help when all the major economies of this world are heading for recession. The region is facing its first recession since the euro was introduced in 1999. The European Commission recently said economic output fell by 0.1 per cent in the third quarter of this year and it expects it to fall again in the final quarter. If its predictions prove correct, the world’s second-largest economic block will join the US and UK in recession.

This will no doubt make European investments even less appealing to UK investors. However, we need to remember that investors still need to maintain diversification in their portfolios and Europe can offer an attractive investment opportunity in its own right. Europe is not as highly geared as the UK and US, the savings ratio is higher, and there is an improving dividend culture and a reforming corporate tax environment that should bode well for the region.

There is some real talent in the European sector and competition is stiff. Up-and-coming fund managers have a challenge on their hands, but I am always keen to meet managers who show promise. Aaron Barnfather, who took over the Lazard European Alpha fund in March 2008, has certainly been making his mark.

Since March 1, when he was appointed to manage the fund, to November 17, according to Lipper it has outperformed its peer group by 3.3 per cent, ranking it in the top 20 per cent of the best-performing funds in its peer group. Not a bad start considering we have witnessed one of the most difficult periods ever for equity markets.

Mr Barnfather has not made wholesale changes to the fund itself as he feels that his style is similar to that of the former manager. He believes he is fairly value orientated and will seek out value from traditional growth stocks. When he was previously at Newton, though its process encompassed themes and had more of a top-down element, the underlying philosophy was similar to Lazard’s when it came to analysing fundamentals.

The core of the process focuses on companies with high financial productivity. This can be companies with high and consistently improving return on capital employed (ROCE) and high return on equity (ROE). He refers to these companies as "compounders" as the high ROCE and ROE can compound to generate exceptional returns over time. Currently, he is identifying high ROE in the telecoms and pharmaceutical sectors and is therefore overweight. He will not rule out companies where the ROCE and ROE is low but where he can see profitability rising at a fast pace.

Larger companies now make up 86 per cent of the portfolio as he feels valuations are compelling in this area. The fund prides itself on its lower volatility than the peer group, so this is unlikely to be an out-and-out small or mid-cap fund and can be held as a core European fund.

Since he took over the fund, the main driver of performance has been its underweight in banks. Where he has had a small exposure, it has been in the better-quality banks like National Bank of Greece. The fund has also been underweight basic materials, and where there has been exposure, it has been in companies with visible and sustainable earnings like Symrise, a diversified chemical manufacturer that produces perfume oils, cosmetic raw materials and plant extracts.

There will be periods when the fund may not perform well, like in a momentum-driven market. In a climate where there is a focus on fundamental analysis and where valuation becomes a vital factor, it should outperform. It is early days for Mr Barnfather and while the initial signs are encouraging, I would like to see how he stacks up against some of our favourite European funds on a longer-term view.

Meera Patel is senior fund analyst at Hargreaves Lansdown