Europe – brands get the bread

European brands get all the bread

Europe – brands get the bread

Our Gatekeeper series continues with a review of the Europe ex-UK sector.

At the close of Q3 2017, the UK retail investment industry is riding the crest of a sales wave, with over £33bn of sales during 2017.  We’ve seen the six highest-selling months on record, and this year has already become the best ever with net retail sales of almost £34bn at the end of September.

While 2017 was dominated by net sales of Absolute Return and Strategic Bond, investors focused on Equities seem to have developed a taste for Europe in 2017 – even if voters didn’t.

Fund favourites

Fund selectors’ favourites in this sector are dominated by Jupiter European (23 picks), Columbia Threadneedle European Select (18) and Crux European Special Situations (15). With over £10bn assets between them, these three large-cap focused mega-funds have become brands in their own right, and can sustain sales even through periods of relative underperformance.

The funds are benchmarked against the large-cap dominated FTSE World Europe ex UK; at the end of Q3 the index had produced 14%, almost double the returns of UK equities.  The favourites’ common emphasis on Industrials produced superior returns of 22%, 17% and 19% respectively.

However, there is more to a market than its largest companies, or a single sector.  Managers who accessed the broader market gained in particular due to small-cap exposure. As an example, Marlborough’s £300m European Multi-Cap Income fund has continued its remarkable performance since David Walton took over the fund four years ago.

With almost 50% of the fund currently invested in smaller companies, performance in 2017 has returned over 23% to investors.  And since Walton took over the fund, it has delivered a 116% return, versus 53% for the Vanguard Developed Europe ex-UK Index fund, and 40-55% more than the three favourites. Despite this outstanding record, the fund still only appears on three lists. It is perhaps a shame that brand power continues to dominate adviser thinking.

Photo by Wesual Click on Unsplash