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The IMA Europe including UK sector has long attracted criticism for being small and imperfectly formed. Incorporating only a handful of funds, it is seen as the poor relation of the IMA Europe excluding UK sector, offering watered down European exposure and below par performance.

The average pan-European offering returned 76 per cent over three years to 19 May, compared with 67.1 per cent for Europe excluding UK. However, over one year it suffered a loss of 8.6 per cent, while its rival managed to stay in the black, returning 0.4 per cent.

In terms of trends within the sector, it falls in line with the rest of Europe. In a recent presentation of its latest ratings for both onshore and offshore European products, totalling 194 funds, S&P Fund Services reported value had proved to be a trap in the year to 1 February 2008, with growth outperforming for the first time in five years.

It also confirmed small caps had significantly underperformed, affecting managers who had previously found steady returns at the lower end of the capitalisation scale.

“A shift from value to growth and from small and mid caps to large caps was the most effective defensive strategy in 2007,” Deborah Boys, associate director at Standard and Poor’s stated.

Managers who had invested almost anywhere within the small-cap arena – whether as part of a well-thought-out strategy or indiscriminately – had achieved the best returns. However, according to Ms Boys, some of these managers are “not natural holders of small caps and when the market turned it was difficult to get out because of the weight of money involved and poor liquidity”.

Ms Boys also pointed out funds which took a top-down approach performed better over the year than those that relied on a pure bottom-up stock-picking style. She singled out Cazenove and Petercam, which were both given AAA-ratings for the first time this year, as investment houses who had “proved their top-down view is effective at the most important time”.