The region could also stand to benefit from a revival in the fortunes of value stocks, given its heavy exposure to certain beaten-up sectors. While growth names have strongly outperformed over much of the past decade, the gap in performance between these stocks and value strategies is now at its widest-ever level.
For some commentators, this is a sign that value investing could reassert its dominance in the coming years – though it is important to remember that such hopes have been thwarted many times of late.
A more obvious reason for optimism comes in the form of recent performance. As of early June, the FTSE Europe ex UK had returned 12.5 per cent year to date in sterling terms. That puts it just behind the S&P 500’s 12.8 per cent. But while European markets may not have been able to overcome the dominance of US shares, they are ahead of indices in the UK, Japan, emerging markets and Asia over this time frame.
Investors should also remember that both the economies and companies in Europe are highly diverse, meaning stockpickers have many ways to play this region even in tough markets. A look at open-ended funds alone confirms this: in the five years to the end of May 2019, 31 of the 96 relevant IA Europe ex UK funds have beaten the index.
Simply the best
With just under a third of funds from that sample outperforming, it remains important to pick the best names. With that in mind, we have identified the top 20 open-ended funds and investment trusts by five-year returns to the end of May, as outlined in Table 1.
A look at the top fund over five years illustrates just how mixed the outcomes have been for some of those investing in Europe. Man GLG’s Continental European Growth fund, managed by Rory Powe since late 2014, has topped the table by returning £1,940 from a £1,000 lump sum over five years. The fund’s biggest bets are easy to spot: around a quarter of its assets are in Germany, with a heavy preference for consumer discretionary names. Mr Powe runs a concentrated portfolio, with just 31 holdings in the fund at the end of May.
The fund sits in third place within the same cohort on a 10-year view, but has fared less well recently. The strategy has underperformed its sector average over one year, and on a three-year basis it sits in the bottom half of this sample.
When it comes to more recent performance, a specialist offering is ahead of the other funds in Table 1. JPMorgan Russian Securities, an investment trust, comes out ahead over one and three years. However, it’s important to note this is down at least in part to the performance of the specific market in question: the RTS index, the trust’s benchmark, has enjoyed better recent performance than many of the funds in our analysis.
