Polar Capital European ex-UK Income fund added to Wealth Shortlist

Polar Capital European ex-UK Income was added to the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential on 16 February 2023.

The fund aims to deliver an income greater than that of the MSCI Europe ex-UK index. It also aims to grow investors’ money over the long term, with less ups and downs along the way. Nick Davis mainly invests in larger European companies that are undervalued but have the potential to bounce back.

We think the fund could be a good addition to an investment portfolio focused on income, or provide some diversification to other European or global funds focused on growth.

Davis has managed the fund since launch in June 2015 and is a contrarian investor at heart. He boasts over 15 years’ experience in the investment industry having managed European funds since 2011, initially at Colombia Threadneedle and more recently at Polar Capital.

Davis is supported by deputy manager Dan Tse and analyst Raniyah Qureshi. Tse has a strong technical background and is naturally quantitatively focused, a skillset he uses to support Davis when it comes to building the portfolio.

Davis aims to invest in companies with strong balance sheets and a competitive position that others struggle to replicate. He avoids those he thinks aren’t capable of consistently achieving at least a 10% annual total shareholder return (TSR) on equity over the medium term. This lens takes into account dividend and earnings growth potential. Given the fund’s income focus, Davis wants to invest in companies yielding at least 2.5% with the potential to grow their dividends over time. He wants the fund to be less volatile than other European funds so considers how cash generative a business is, and how resilient this means they could be in a market downturn.

The portfolio is broken down into three main buckets - Growth & Income, Balanced and High Yielders. The fund is generally equally split across these buckets and is made up of between 25-50 companies. The amount invested in each company ultimately depends on the team’s conviction, but the fund can be quite concentrated. This means each investment could have a big impact on performance, which increases risk. They also have the flexibility to use derivatives which can magnify any gains or losses and increases risk.

Over the long run, the fund has paid an attractive income to investors. As of the end of January 2023 the fund yields 3.75%, although income is not guaranteed, and yields aren’t a reliable indicator of future income. The fund's charges can be taken from capital rather than income. This increases the yield but reduces the potential for capital growth.

We like the defensive nature of the approach and the disciplined investment process. Our conviction lies with Davis who has built a strong track record in European income investing which gives us confidence in the fund’s long-term prospects. Though as always there are no guarantees.

To find out more about the investment process and performance, please read our latest update.

Past performance is not a guide to the future. Source: Lipper IM to 31/01/2023.

More on Polar Capital European ex-UK Income fund, including charges

Polar Capital European ex-UK Income fund key Investor Information