3 Funds for European Exposure

VIDEO: Looking to surf on the European equity wave? Morningstar's analyst Jack Fletcher-Price offers up three fund picks

Sunniva Kolostyak 6 June, 2023 | 8:51AM
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Sunniva Kolostyak: Welcome to Morningstar. Many European markets are doing well at the moment, so Jack Fletcher-Price from the manager research team is here to give us three funds for those looking for exposure to the market. Jack, thank you very much for being here today. What's the first one you've got for me?

Jack Fletcher-Price: So the first one is CT European Select. This fund is led by Ben Moore he's taken sole responsibility for this strategy at the beginning of 2021, following David Dudding stepping back to focus on the global mandate. Moore continues to implement the same quality centric process that Dudding engineered and we expect the returns profile going forward to reflect this. Historically, companies with volatile growth, cyclicality and value characteristics have been avoided in favor of more predictable top and bottom line growth. Some of the longer duration names expectedly rerated in 2022, and on the face of it, discrete performance wasn't great. However, if we look at performance since the nadir at the end of September to the end of May 2023, we can see the fund has outperformed index and peers, which reaffirms our expectation that this fund should recover quickly following periods of underperformance, as it has done in past drawdowns. The year-to-date performance has been second percentile in the category. Contribution has been fairly broad based, but it's definitely been led by the luxury names LVMH and Hermes and some of the semiconductor names in the portfolio.

Kolostyak: So what about the second fund, is this the same kind of style as well?

Fletcher-Price: The second fund is very similar. It's Jupiter European. This fund is run by Mark Nichols and Mark Heslop, who both joined from Columbia Threadneedle in 2019. Nichols was actually the co-manager alongside Dudding on the European Select Fund before Ben Moore joined. The managers' aim to add value here through capitalizing on the short term outlook of the market, identifying companies that can beat the fade as they put it, which means they can maintain excessive returns on capital for longer than typical investment horizon. They want the industry dynamics of the businesses they own to aid this, issuing commoditized business models. The tenets of quality pursued by the team logically manifest in relatively large sector weights. For instance, low quality cyclical and commoditized business models such as energy don't feature in the portfolio. On a discrete basis, the funds outperformed in 2020 and 2021, but in 2022 the fund struggled in the face of rerating. While this is not an environment we would expect the fund to perform, we would like the quality bias to come through in meaningful downside protection as it has done previously in 2020.

Kolostyak: So what about the third fund?

Fletcher-Price: The third fund is EdenTree Responsible and Sustainable European Equities, this fund is led by Chris Hiorns, since 2007. He actually joined the firm as a graduate in 1996. It represents a genuinely differentiated product in the sustainable European equity space, taking a value and contrarian approach to investing. Over his tenure Hiorns has managed to outperform both the index and peers, which is especially impressive given the stylistic headwinds he's faced. While there is negative ethical exclusions which is typical of sustainable funds, this actually also employs a positive ESG screen, aiming to capitalize on some tailwinds they find there. Unlike the previous funds, Hiorns is not seeking to benefit from long term winners, instead he's looking for companies that are going through bouts of difficulty and are currently out of favor and potentially more cyclical in nature. The fund has consistently exhibited a value bias. And a mid-cap bias, though at the sector and country level weights have changed over time as Hiorns has followed unloved areas of the market.

Kolostyak: So fund holdings wise, if it's a responsible fund, how does it differentiate itself from the first two funds that you've got?

Fletcher-Price: They actually all don't really invest in energy as they see it as quite a low quality either or irresponsible sector, but it definitely takes a value approach to investing in European equities market.

Kolostyak: Well, Jack, thank you very much for being here today. For Morningstar, I'm Sunniva Kolostyak.

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Sunniva Kolostyak

Sunniva Kolostyak  is data journalist for Morningstar.co.uk

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