European funds are seldom flavour of the month with retail investors, but four years on from the Brexit vote they have notched up eye-catching returns – with the average fund in the Investment Association’s (IA) Europe ex UK sector up 42.8%.
The sector has comfortably outpaced UK funds, according to research by Chelsea Financial Services, with the IA UK all companies sector up just 14% – over the period of 23 June 2016 to 21 June.
Commenting on the findings, Darius McDermott, managing director of Chelsea Financial Services, says: “There has certainly been a mismatch in performance between the UK and Europe over the past four years since the referendum.
“Brexit and the ongoing uncertainty have made the UK unattractive to investors. The concentration of oil and gas, basic materials and financials in our top 100 companies – all ‘value’ and out of favour areas – has not helped performance either. Even lower down in the mid 250, sector bias has not helped, particularly in recent months as travel, tourism and leisure companies are highly represented.
“In contrast, the weak pound against the euro has boosted overseas holdings. Thankfully, a number of well-managed funds have been able to buck the trend.”
Over the four year period the top five European funds are: LF Miton European Opportunities (117.5%), Baillie Gifford European (96.5%), Comgest Growth Europe ex UK (81.6%) and ASI Europe ex UK Equity (80.3%).
While the average UK fund is up just 14% over the period, there have been some strong performers, particularly those that are smaller company specialists. The top five fund performers in the IA UK All Company sector are: TM Cavendish AIM (94.6%), MI Chelverton UK Equity Growth (78.9%), FP Octopus UK Micro Cap (74.6%), Liontrust UK Micro Cap (70%) and TB Amati UK Smaller Companies (64.6%).
European funds, though, rarely top the sales charts. In fact, over the past year the IA European ex UK sector has seen more money withdrawn than invested in every month bar one – December 2019.
Professional investors have also been reducing exposure to European funds, including John Chatfeild-Roberts, head of strategy for the Jupiter Independent Funds team, and Andrew Bell, chief executive of Witan investment trust.
Ben Yearsley, director of Shore Financial Planning, notes Europe is being avoided by investors “because it’s seen as stodgy and old-fashioned with lots of moribund sectors – banking for example.”
He adds: “Europe is not seen as high growth or at the cutting edge of technology, which of course has been driving markets globally. Add in the problems in Europe and Italy, especially with paying for the stimulus measures to do with coronavirus, and it is no wonder investors have shunned Europe. This is despite the fact there are some great managers and companies in Europe.”