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Fund Review: Europe


Since the European Central Bank (ECB) and its president Mario Draghi announced quantitative easing (QE) in January, Europe has begun to look a viable candidate for investment again.

As a result, investors have started to dip their toes back in the Europe ex UK waters. Net retail inflows into the Investment Association sector have maintained a positive trend since December 2014, with a boost in March and April – following the official start of ECB QE – when inflows reached £464m and £398m respectively.

But while inflows have improved this year, has performance matched?

For the 12 months to November 6 2015 the FTSE EuroFirst 300 index has delivered a 4.3 per cent gain, slightly ahead of the MSCI AC Europe index increase of 3.5 per cent, according to data from FE Analytics.

While these figures lag the S&P 500 and MSCI AC World indices’ gains of 10.6 per cent and 5.7 per cent respectively over the same period, it still puts Europe ahead of the FTSE All-Share’s 2.8 per cent rise and the MSCI Emerging Markets index loss of 7.1 per cent.

Meanwhile, the S&P Europe 350 index recorded its best performance in October since July 2009 with a gain of 8.5 per cent, according to S&P Dow Jones Indices.

Tim Edwards, senior director, index investment strategy at S&P Dow Jones Indices, notes: “European stockmarkets began the month positively, as concerns over China receded, global equities rebounded, and volatility measures attenuated.”

But while the economic backdrop is helping the European equity markets improve, another factor to consider is the income element of companies in the underachieving region.

Alan Porter, manager of Securities Trust of Scotland, explains: “Where are the opportunities to be found in a low-growth environment? [One] area of opportunity is in companies where there is scope for a recovery in the dividends paid to shareholders, such as European banks. In Europe, when quantitative easing was introduced earlier this year, it had the effect of repairing balance sheets for some companies in the financial sector.

“As an example, I recently bought into Intesa Sanpaolo, the leading banking group in Italy. The company is prioritising more fee-intensive businesses and improving operational efficiency, and is now one of the European leaders in asset management and a very cost-efficient operation. As a result of this and its strong capital position, Intesa aims to reward its shareholders with high and sustainable dividends.”

Having survived numerous crises and the constant threat of a eurozone break up, Europe is currently a more stable region. With the US signalling a potential rate rise in December, and Mr Draghi dropping hints of more QE, more money may well find its way to Europe in the coming months, unless another crisis suddenly emerges.


FP Argonaut European Enhanced Income

A new entrant to this year’s Investment Adviser 100 Club, this £121m fund was launched in April 2010 and is managed by Oliver Russ with Greg Bennett as his deputy. The fund has delivered 57.6 per cent for the five years to November 6 2015 compared with the 38.2 per cent average return of the IA Europe ex UK sector. The fund’s largest geographical weighting is to Germany at 19.2 per cent, while Italy accounts for 11.9 per cent of the portfolio.

JPMorgan European Investment Trust Income

A returning entrant to this year’s 100 Club, this investment trust is managed by Stephen Macklow-Smith, Alexander Fitzalan Howard and Michael Barakos. With gross assets of £118m, the trust has delivered a total return of 68.9 per cent for the five years to October 6 compared with its MSCI Europe ex UK benchmark gain of 29.2 per cent. The largest sector allocation is to financials at 35.5 per cent of the portfolio, while industrials account for 14.7 per cent.


Man GLG Continental European Growth

Now managed by Rory Powe, this fund was launched in June 1998 with the aim of achieving above-average long-term capital growth through investing, either directly or indirectly, in firms listed on European stock exchanges. The £200m vehicle has delivered a peer-beating return of 89.1 per cent in the five years to November 6, thanks in no small part to Mr Powe’s impressive one-year figures. The largest geographical weighting is to Denmark at 21 per cent of the portfolio, while Ireland’s allocation of 15.5 per cent pushes Germany into third with a weighting of 13.9 per cent.

In this special report