OBSR highlights the stars of Europe

Emma O’Neill, investment research analyst at OBSR, a Morningstar company, compares some of the Europe funds rated by the business.

The universe of Continental European mutual funds grew rapidly in the 1990s as demand from predominantly UK investors surged. However, global investors generally invest in the European region on a pan-European (Europe including UK) basis.

The boundaries within Europe are generally blurred, and the region can be segmented by culture, geography or industry sector. While most fund managers take a sector view of the region, geographical awareness has become more prevalent in recent months as markets began differentiating between countries with sovereign debt issues. It is worth noting that within Europe, France, Germany, Switzerland and Spain constitute about two-thirds of the benchmark. Furthermore, at a sector level, financials is the most dominant sector at about 25% of the broad benchmark.

While manager styles vary within the sector, there is a notable dearth of core offerings that are very benchmark aware, as the mandates of most funds are relatively unconstrained. OBSR rates 24 UK-domiciled Continental European funds, including Ignis Argonaut European Alpha, Neptune European Opportunities, Henderson European Growth and Jupiter European. Within the offshore universe, OBSR rates 10 funds highly, including JOHCM Continental European and Edinburgh Partners European Opportunities.

Ignis Argonaut European Alpha

Ignis Argonaut European Alpha offers investors exposure to a concentrated portfolio of European firms. It is managed using a flexible approach, with the aim of delivering performance ahead of both the index and peers.

The fund is run by Barry Norris who, together with Oliver Russ, set up Argonaut Partners in 2005 in a joint venture with Ignis Asset Management. The fund is multi-cap with neither a value or growth bias, but rather a pragmatic approach that seeks to identify companies that are likely to deliver earnings growth and are priced reasonably. Since launching the fund, the manager has demonstrated a thoughtful approach to investment, with a deep understanding of the companies he owns and an awareness of the overall macro environment.

Neptune European Opportunities

Neptune European Opportunities offers investors an unconstrained and actively managed European equity portfolio. The fund will be reasonably concentrated in nature and invested across the market-cap spectrum with no predetermined style bias.

Rob Burnett has managed this fund since 2005 and is also responsible for the research of the financials sector within Neptune. The company’s philosophy is to form positive views on asset classes, sectors and stocks and back them strongly with high, active risk. The manager uses a flexible approach to investing, often taking significant off-benchmark positions combined with tactical trading, which has helped to navigate the fund through different market environments.

Henderson European Growth

Henderson European Growth is run by an experienced fund manager, Richard Pease, and co-manager Simon Rowe. It typically has a strong emphasis on mid-cap European firms. The investment style is essentially eclectic, based on investing in quality companies with sound businesses and financials at attractive valuations, relative to their growth potential. The investment approach is likely to favour companies that are undervalued, out of favour or have genuine growth potential. The manager constructs the portfolio with risk in mind and a strong focus on potential downside of each investment. While it is evident that investment decisions are made with capital preservation at the fore, the fund tends to underperform when mid-cap companies lag the market.

Jupiter European

Jupiter European offers investors a concentrated portfolio managed with conviction and a bias towards mid-cap stocks. Alex Darwall, the current fund manager, joined Jupiter in 1995 and has managed this fund since 2001. The manager places a high degree of emphasis on meeting and obtaining an in-depth understanding of each company he invests in. Furthermore, he ensures he maintains direct regular contact with company management. In general, he seeks out well-financed, preferably structural growth companies with strong management. This tends to lead him to companies with overseas exposure, particularly in emerging markets.

JOHCM Continental European

Within the offshore universe, JOHCM Continental European, run by Paul Wild and Rod Marsden, is a core offering that aims to add value over the benchmark and is managed with a strong awareness of the positioning of the index, as well as the expression of the team’s highest conviction ideas. The managers adopt a flexible investment approach according to an investment process that combines sector and company fundamental analysis.

Edinburgh Partners European Opportunities

In contrast, Edinburgh Partners European Opportunities, managed by Dale Robertson, offers a relatively concentrated portfolio of European equities with an absolute return mindset and little reference to the benchmark. The manager focuses on undervalued stocks that have the potential to be re-rated based upon proprietary five-year earnings expectations. The team conducts robust in-depth research and takes a measured risk approach with capital preservation at the forefront of each investment decision. Fund performance may deviate considerably from the benchmark, due to the manager’s long-term investment approach of usually five years.