EVER since Mario Draghi promised to do “whatever it takes” to save the Eurozone, investor sentiment towards the region has improved slightly. With growth returning in some countries, albeit at a modest 0.3 per cent overall in the second quarter, and the MSCI Europe (excluding the UK) index rising from around 1,600 to over 1,770 since the start of June, equity funds with exposure to the Eurozone may be attractive.
According to Rebecca O’Keeffe of Interactive Investor, the star performer so far has been Cazenove’s European Income fund, managed by James Sym. It has returned 28.3 per cent since the start of the year, and came second out of 104 European (excluding the UK) funds over the last three months. O’Keeffe says, “the fund has a very wide brief, allowing it to be nimble in changing stance”.
This vast remit, with many of the best performing funds incorporating both core and peripheral economies as well as a wide spread of sectors, puts extra emphasis on the stock-picking skills of managers.
Rob Bowie of Aberdeen Asset Management says that “our attribution analysis of some of the most successful funds shows stock selection as a key driver of returns.” Bowie highlights Henderson’s European Special Situations Fund, managed by Richard Pease, as an example. According to Morningstar, Pease has returned 33.62 per cent since August 2012, earned by focusing on growth in the small-to-mid cap sector.
The focus on undervalued smaller companies has certainly been a theme among this year’s successful funds. But Fidelity’s Ayesha Akbar recommends BlackRock’s Continental European fund, managed by Vincent Devlin, for longer-term holdings. Its well-resourced equity team has returned 31.89 per cent since August 2012. In past years, it has exhibited a slight bias towards higher quality companies – often in the peripheral economies – meaning it may benefit from domestic earnings growth in the longer term in Europe.
Akbar points out that there has not been a clear-cut difference between returns from the peripheral and core economies this year. Managers found value and returns accross the bloc. But sustaining this success may depend on finding similarly skilled stock pickers.