Posted inNORDICSEquities

Growth funds dominate top-performing European equity league

At the start of 2017, fund buyers were positioning for a value rally in the asset class. It hasn’t quite worked out that way, even though bank stocks rallied in April and early May on the back of the election of Emmanuel Macron, a former banker, as France’s new president. But year-to-date, growth stocks have continued to outperform their value counterparts.

Growth has the edge

And that shows, when looking at the year-to-date performance tables: roughly 40% of the 35 top-decile performing European equity funds are growth funds, though they make up less than 12% of the total sample. By contrast, value funds account for less than 9% of top-decile funds, even though they have a similar number of representatives in the sample.

But which European equity fund has performed best year-to-date? The fund has an obscure name, at least for those who are not familiar with the Finnish language: it’s the Säästöpankki Eurooppa fund, which has returned 15.8% year-to-date. The fund has no style bias, investing across sectors in European equities. But it has an overweight to quality/growth names, having an allocation of about 37% to consumer staples and consumer discretionary (versus 24% for its MSCI Europe benchmark).

The best-scoring funds that are classified as ‘value funds’ by Morningstar (the BG Long Term Value Fund and the Acadian European Equity Fund) aren’t actually exactly that, since they both have a strong overweight to information technology, which isn’t quite a value sector. Both funds have large allocations to financials too, which also helps to explain their outperformance.

That leaves us to the all-important question: have the European equity funds that outperformed this year also been doing that in previous years?  

Consistent outperformers

We know from previous Expert Investor research that very few European equity funds consistently outperform their peers, but the top-performing funds are surprisingly consistent in maintaining outperformance: seven out of the eight top-10 funds with a track record of more than three years have outperformed their peer group average over the past three years. And most have done so by a large margin.

 

Two of these funds (the Wellington Strategic European Equity Fund and the aforementioned Säästöpankki Eurooppa fund) claim a top-10 spot over three years too, having recorded annualised returns of 13.6% and 12.3% respectively. Of the six remaining funds, four also rank top-quartile over three years, another one is second-quartile, and just one has underperformed the majority of its peers over the past three years.

This shows that the European equity funds that did best during the first 6.5 months of the year also among those that have outperformed the bulk of their peers over the longer term.  

Part of the Bonhill Group.