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DFMs find themselves on the right side of Europe bet

European fund managers may be forgiven for preening themselves right now. 

Asset Allocator has been digging into data from FE Fundinfo, and can reveal that the best-performing asset classes of the three months to the end of February 2023 were all within the European equities universe. 

Many market participants may have had fears around the consequences of higher gas prices on European consumers, but Charles Younes, research manager at FE Fundinfo, says: “A warmer winter prevented the widely expected energy crisis in Europe from materialising.

"As a result, economic activity in the region has exceeded expectations and Europe has avoided recession. Smaller companies and cyclical stocks have been the biggest beneficiaries of the better economic performance.”

Three-month cumulative performance to last month end overall (Dec 22 – Feb 23)

  • IA European Smaller Companies 9.16%
  • IA Europe Excluding UK 8.18%
  • IA Europe Including UK 6.45%

The DFMs we cover were on the right side of this trade, as the average exposure to European equity funds in their Balanced portfolios rose from 4.7 to 5.4 per cent between September 2022 and today. 

In contrast, the worst performing sector over the winter, according to FE Fund Info’s research, was more predictably, UK gilts, which lost 5.3 per cent over winter. 

Among the allocators we cover, the average exposure to government bonds more broadly fell from 6.1 per cent to 5.8 per cent over the final three months of 2022.

Index-linked government bond funds accounted for 2.5 per cent of the total allocation, a figure which remained pretty consistent throughout 2022. 

European equity performance perhaps demonstrates that even if one can predict the macro, predicting the winners from the macro is more difficult than ever.  

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