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Politics and inflation fears wipe out 2018 European equity returns

Decrease returns

European equity funds within the FCA Recognised and Offshore Mutual universes returned 0.1% and -0.2%, respectively, during the five months to 31 May 2018, according to FE Analytics data.

In late January and early February inflation fears pushed the 10-year US Treasury note up to nearly 3%, the S&P 500 index fell 4%, and a global equity selloff followed pushing European equity fund returns to below -4% (see chart below).

European equity fund sector average returns five months to 31 May 2018

European equity fund sector performance five months to 31 May 2018

Source: FE Analytics

While European equity fund returns started to recover from early April, returns took a steep dive when Italy’s election drama kicked off. Expert Investor previously reported that there were fund selectors that had reduced their Italian investments to virtually zero.

At the same time, Spain has also had its own political issues with its prime minister ousted on Friday.

Consumer products and industrials keep returns afloat

The top five European equity funds during the five months to 31 May 2018 returned between 9.9% and 6.8% and all had their top sector holdings in either consumer products or industrials.

The top fund was Alexander Darwell’s Jupiter European Feeder Z GBP at 9.9% that had its top allocation towards industrials at 28.8%, healthcare (20.9%), consumer products (13.7%), and services (13.6%).

At the end of 2017 Darwell’s European growth fund received the highest level of interest from advisers.

Comgest’s Growth Europe ex UK Z Accumulation fund came second at 7.2%, followed by Hermes Europe ex UK Equity F Accumulation at 7%, Aberdeen Global European Equity ex UK X Accumulation at 6.98%, and Hermes Europe ex UK Equity R Accumulation at 6.8%.

Top 5 European equity fund performance five months to 31 May 2018

Top 5 European equity fund performance five months to 31 May 2018

Source: FE Analytics

Financials allocation drops returns

The bottom five European equity funds during the five months to 31 May 2018 returned between -4.8% and -8.5% and almost all of the funds had their top allocation towards financials.

Degroof Petercam Asset Management’s Equities L EMU Dividend A was the worst performer at -8.5% and had its highest allocation towards financials at 25.7%. This was followed by industrials at 12.5%, consumer cyclical at 12%, and basic materials at 11.2%.

The fund mainly invests in equities of corporations based in countries that are members of the European Economic and Monetary Union.

The second worst performing fund was Argenta Actions Belges R Inc at -8.07% which reproduces the Bel 20 Index – the stock market index of Euronext Brussels.

This was followed by Julius Baer Multiopportunities Sicav Euroland Value Focus I1 fund at -7.11%, Boost Euro Stoxx 50 3x Short Daily ETP at -5.58%, and GAM Multistock Euroland Value Equity B at -4.75%.

Bottom 5 European equity fund performance five months to 31 May 2018

Bottom 5 European equity fund performance five months to 31 May 2018

Source: FE Analytics

The funds were found using FE Analytics’ FCA Recognised and Offshore Mutual universes that were domiciled in either Ireland or Luxembourg.

Jassmyn Goh

Jassmyn reported from Sydney to New York to Jakarta before joining Expert Investor. She was most recently Features Editor at Money Management and Super Review in Sydney.

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