Using the Lipper Leaders scoring system to analyse the best performing funds in the IA Europe ex UK sector.
Europe hasn’t had a look-in for a long time. Sure—love the history, great cities, food (in the south, anyway), skiing, and so on. Holiday, fine: equity markets, no thank you.
That sentiment, however, may be changing.
Investors have been enthralled by US equities, with this market being the main money-taker last year. And they have been rewarded by this decision. Over the past three years, IA North America sector funds attracted about £65bn of UK investors’ money, while more than £13bn was pulled from Europe ex-UK sector funds. While the sectors are up about the same amount over that period (circa 21%), North America pulls well ahead over five years.
But US jitters have spread over the course of the first quarter of this year, and suddenly boring old Europe doesn’t seem so bad after all. Europe (and also the UK) has outperformed the US in Q1. With the US exceptionalism story under severe strain, investors are beginning to cast an eye to European equities, and this has been reflected in recent fund flows.
Had enough of the US’ Magnificent Seven? Personally, I prefer Kurosawa’s original Seven Samurai, and when the Japanese market comes back into fashion, I’ll be desperately searching for a group of Topix stocks to apply the moniker to. But until that happy day, there are options closer to home, in the form of Europe’s Granolas. This sobriquet was coined by Goldman Sachs a few years back to identify European stocks with strong earnings growth, low volatility, high and stable profit margins, and solid balance sheets. They are: GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP, and Sanofi. It’s been a harder sell than the BRICs (also coined by Goldman Sachs), but perhaps its time has come. Fibre-rich breakfast cereals may not be as eye catching as iconic Westerns, but—it’s hoped—at least they will keep your returns regular.
Stylistically, the top three performers over three years are all multi-cap value: buying undervalued stocks across the market capitalisation range. The next five are large-cap core: no specific growth or value style bias, and invested largely in large caps. Conversely, the bottom of the sector is dominated by growth funds, over both one and three years. This clearly is a market that favours value—for now, at least.
What is also noteworthy is that six out of the 10 funds in the table below are index trackers. With the increasing diversity of passive plays, tracking indices as varied as smart cities to sustainable infrastructure, it’s not unusual to see a particular area of the market heading up the performance tables. Cannabis ETFs were shooting the lights out three or four years ago, providing a gift to pun-inclined headline writers. But the index tracked by the funds in the table below is far from niche, as it is the Euro Stoxx 50, which represents Eurozone blue-chip companies considered as leaders in their respective sectors.
The proliferation of trackers illustrates that Europe is a difficult market for fund managers to beat the index—at least in among large caps. Given that you would expect to pay less for passive than actively managed funds, such vehicles are worth considering as core components of a portfolio.
That said, the top three performers over three years are actively managed. Artemis SmartGARP European Equity has returned 60.3% over three years to the end of March. Its SmartGARP tool will be familiar to those who know Artemis, and screens financial characteristics of companies in its universe to identify those that are growing faster than the market but are trading on lower valuations. Waverton’s funds occupy second and third places. While they are managed by the same team—and are both categorised as multi-cap value by Lipper—their top holdings look rather different, although their sector allocations are broadly in line with one another, as of March.
Current conditions are febrile, and the US should never be written off. But its domination till late has generated a lot of concentration risk. Allocating to Europe should be considered as a way of mitigating that, whatever your breakfast preferences.
Table 1: Top-Performing Europe ex UK Funds Over Three Years (with a minimum five-year history)
All data as of March 31, 2025; Calculations in GBP
Source: LSEG Lipper
This article first appeared on p17 of the April edition of Moneyfacts.
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The views expressed are the views of the author and not necessarily those of LSEG Lipper. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. LSEG Lipper cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.
