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Threadneedle European Select - economic recovery gathers pace

Kate Marshall | Fri 26 January 2018

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • European economic growth and company earnings improved throughout 2017
  • The fund also delivered robust returns for investors
  • Managers remain focused on companies with sustainable earnings and cash flows

Our View

Threadneedle European Select is run by David Dudding - a highly-experienced investor in European shares with a 15-year track record. He favours companies with sustainable growth prospects, so a focus on growing earnings and cash flows are central to his process.

It's an approach that’s worked well over the long run. Our analysis suggests the manager has delivered good performance through a combination of picking companies with superior growth prospects and investing the fund in some of Europe’s most promising industries. This is not a guide to how the fund will perform in future, however.

David Dudding also has the support of an experienced team at Threadneedle and he’s been joined by co-manager Mark Nichols since July 2016. We feel both managers make a valuable contribution to the portfolio and our high conviction in the fund means it features on the Wealth 150+ list of our favourite funds.

Portfolio review

Investor sentiment towards Europe improved noticeably in 2017, as the euro zone’s economic recovery gathered pace. Many companies also delivered stronger earnings growth, which is a positive as growing earnings have tended to support rising share prices over the long run.

European stock markets generally performed well last year to reflect the improving economic and corporate backdrop. The Threadneedle European Select Fund performed better still and grew 19.6%* compared with 17.5% for the FTSE World Europe ex UK Index, although please remember past performance is not a guide to future returns.

Annual percentage growth
Dec 2012 -
Dec 2013
Dec 2013 -
Dec 2014
Dec 2014 -
Dec 2015
Dec 2015 -
Dec 2016
Dec 2016 -
Dec 2017
Threadneedle European Select 23.1% 4.5% 11.1% 12.5% 19.6%
FTSE World Europe ex UK 25.2% 0.2% 5.3% 19.7% 17.5%

Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2017

Drinks company Davide Campari-Milano and Elis were two of the fund’s best-performing investments. Elis offers laundry services and rents, rather than sells, its goods. It might not sound like the most exciting company, but it has many of the qualities the managers seek. It has a significant share of its market and built up strong networks with its suppliers and customers. Combined with the sheer scale of the company, this makes it difficult for new competitors to enter the same industry or take away the business of loyal customers.

New additions to the fund include shares in sportswear brand Adidas. David Dudding and Mark Nichols are encouraged by a recent change in management, which they believe will build a stronger long-term business. The company has previously lost market share, but the new management team aim to tackle this by growing the business in the US and selling some of the weaker parts of the business.

Overall the fund is a concentrated portfolio of 42 stocks, which allows each to have a significant impact on performance, but it is a higher-risk approach.

Outlook

A number of political risks remain in Europe. The full effects of Brexit and Catalonia’s bid for independence from Spain are still unclear, while Italy is due to hold a general election in March, and Germany’s political outlook is also uncertain.

The managers continue to focus on finding companies they believe will prevail regardless of wider economic and political issues. Companies with the ability to raise prices for their goods and services, for example by owning brands that command a high level of consumer loyalty, could fare well even when wider market conditions weaken. We feel this approach should see the fund in good stead over the long term, although there are no guarantees.

Find out more about this fund including how to invest

Please read the Key Features/ Key Investor Information Document in addition to the information above.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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