Think 2016 has been a big year for political upsets? Wait out the next 12 months where we can expect general elections in France and Germany, and potentially Italy too thanks to the recent resignation of Prime Minister Matteo Renzi this week. Although Austria voted against a far-right regime in Sunday’s election, it is doubtful we have seen the end of populist politics. The social dissatisfaction and anti-globalisation swell that has led to the election of Donald Trump in the US and the leave vote in the Brexit referendum ticks on.
With political uncertainty comes stock market volatility, and an opportunity for long-term investors to add to quality positions on the cheap. If you are feeling bullish on European equities, next year’s elections may prove a buying opportunity. Here are three top rated funds to choose from.
Comgest Growth Europe
This long-term investment strategy is managed with the highest level of expertise, say Morningstar analysts. This fund’s approach is solely focused on quality companies capable of growing independently of the economic cycle. These companies generally have a dominant commercial position, solid management, and a sound balance sheet. Stocks belonging to the most cyclical sectors, including financials, are therefore deliberately excluded. Conversely, the team favours sectors in which companies have a strong competitive advantage like health care or technology.
The approach is clearly for the long term, and the 30 or so securities in the portfolio are remarkably stable. A solid, experienced team ensures the implementation of this distinctive strategy.
Jupiter European Opportunities (JEO)
Morningstar analysts think Jupiter European Opportunities is a compelling choice for European equities. Senior analyst Muna Abu-Habsa explains that the manager Alexander Darwall has been in charge of this fund from the start, and thinks this stability at the helm is a contributing factor to the fund's success thus far, as is the manager's European equity experience, which extends back to the 1980s.
He joined Jupiter in 1995 to run the European components of a number of institutional portfolios before taking on this fund and others in 2000. Darwall takes a high-conviction approach; he builds his portfolios from the bottom up, following thorough fundamental analysis, and in particular he likes management teams that act in the interests of their shareholders.
The fund is unconstrained to allow him to find the best opportunities across Europe, including the UK, which sets it apart from the UK-domiciled open-end funds he runs and makes the trust distinct. Indeed, the weighting in the UK has been prominent in the past few years, and investors should be aware that the fund's performance fee is calculated against an ex-UK index; given that trend, Morningstar analysts would like the board to revisit this choice and make it more representative for future assessment. Nonetheless, the risk/return profile shows they are being well rewarded here. Darwall tends to protect better in down markets, while producing strong returns in up markets.
Uni-Global - Equities Europe
This very disciplined strategy is an excellent choice, says Morningstar analyst Mathieu Caquineau. The fund is characterised by a rigourous investment strategy where risk management is central. Portfolio construction is based on quantitative optimisation techniques designed to produce a diversified portfolio with the lowest possible volatility.
Seeking diversification also leads to great flexibility in terms of sector allocation and companies' capitalisation sizes. Thus, by late November 2015, a third of the portfolio was invested in mid-caps against 12% on average for its competitors.
