Europe has been one of the worst-performing markets this year, not helped by ongoing issues related to the war in Ukraine.
IA Europe ex UK has fallen from the 18th best performing sector out of 58 in the Investment Association universe over the past three years to the 43rd best within the past 12 months.
It has dropped 12.7% since the start of the year, while the IA Global sector is down less than half as much, at 5.4%.
Total return of sectors since the start of the year
Source: FE Analytics
However, as inflation shows no signs of slowing, IA Europe ex UK’s high exposure to traditional ‘value’ sectors such as industrials (15.9%), financials (13%) and basic materials (9.9%) could provide some shelter to investors.
With European assets trading at depressed values, now may also present an opportune time to buy.
Here, Trustnet has filtered down the IA Europe ex UK funds in the top decile of the sector for alpha, information ratio and total return over the past five years, while charging below average fees. The MSCI Europe ex UK index was used as the benchmark.
| Fund | OCF | Alpha | Info. ratio | Total return |
| Allianz Continental European | 0.79% | 2.59 | 0.26 | 28.5% |
| IFSL Marlborough European Special Situations | 0.79% | 4.51 | 0.53 | 49.5% |
| Premier Miton European Opportunities | 0.81% | 6.62 | 0.64 | 57.8% |
| MFS Meridian Continental European Equity | 0.85% | 5.75 | 0.94 | 57.9% |
| abrdn Europe ex UK Equity | 0.87% | 3.32 | 0.37 | 35.5% |
The cheapest fund to meet these criteria was IFSL Marlborough European Special Situations, which has an ongoing charges figures of 0.79%.
This £399m portfolio, run by FE fundinfo Alpha Manager David Walton, is up 51.8% over the past five years compared with 18.1% from the sector.
However, the fund has sunk slightly below the sector average since the start of the year, down 15.9%.
Total return of fund vs sector over the past five years
Source: FE Analytics
Its preference towards small-cap companies, which account for 43.6% of assets, is partly responsible for this short-term underperformance. The IA European Smaller Companies sector is down 21.7% so far this year.
A fund that met the above criteria and did even better over the five-year period was Premier Miton European Opportunities.
It was up 61.3% over the past five years, climbing 43.2 percentage points ahead of its average peer. Its ongoing charges figure is just 0.81%.
Total return of fund vs sector over the past five years
Source: FE Analytics
The £1.9bn portfolio has been led by FE fundinfo Alpha Managers Carlos Moreno and Thomas Brown since it launched in 2015.
They previously worked with each other on a separate European fund at Thames River Capital, which analysts at RSMR said has helped them to “built up significant experience and knowledge in the mid and small cap space”.
“They have demonstrated an ability to identify companies benefiting from structural growth themes, making this a strong satellite option for investors,” they added.
Despite its long-term outperformance, Premier Miton European Opportunities has dropped down to the bottom quartile over the past six months, declining 23.9% since the start of the year.
However, its alpha score of 6.62% was the highest of any fund with below-average costs.
The MFS Meridian Continental European Equity and abrdn Europe ex UK Equity funds both had higher OCFs of 0.85% and 0.87% respectively, but ranked lower in terms of alpha.
Likewise, MFS Meridian’s 56.8% return over the past five years and abrdn’s 38.5% were both lower than the Premier Miton fund.
Total return of funds vs sector over the past five years
Source: FE Analytics
However, both funds have performed better than Premier Miton European Opportunities since the start of the year, with MFS Meridian Continental European Equity’s negative return of 8.7% better than the sector average over the period.
Alternatively, investors could go for the Allianz Continental European fund as a cheaper option – its ongoing charges figure is 0.79%. However, it came within the sector’s top 20% for alpha rather than top decile.
It was up 31.8% over the past five years, although its lower returns may be a fair trade-off for the lower OCF. Even so, its 26.5% decline in 2022 so far means it has underperformed over the short-term.
Total return of fund vs sector over the past five years
Source: FE Analytics