Barings Europe Select: May 2025 fund update

• Lead fund manager Nick Williams has over 30 years’ industry experience, making him one of the most experienced investors in the European Smaller Companies sector

• Williams and his team invest in small and medium-sized European companies, which is different from most other European funds

• The fund has delivered higher returns than the average fund in the European Smaller Companies sector over the longer term

• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

Barings Europe Select is different from many other European funds. It invests in small and medium-sized companies with a GARP (Growth at a Reasonable Price) investment style. This means the managers invest in companies they believe can grow earnings steadily, but where the shares can be bought at a lower price than the earnings potential suggests they should be. Many other European funds focus on larger, more established companies. The focus on smaller businesses increases risk though.

The fund could be used to diversify the European part of an investment portfolio, or a broader global portfolio focused on growth. A focus on smaller firms can also help diversify a long-term portfolio with a bias to larger companies.

Manager

Nick Williams is Head of Small and Mid-Cap Equities at Barings. He has over three decades of experience investing in Europe and managed funds investing in companies of all sizes. We believe this has given him expert knowledge of the wider European market over the length of his career.

Williams joined Barings in 2004 and took over management of the Europe Select fund shortly after. There aren’t many fund managers with such a long and successful track record of investing in this less familiar area of the European stock market. He’s demonstrated a long-standing commitment to his investment process and it’s a quality we rate highly.

Williams is currently supported by three co-managers - Colin Riddles, Rosie Simmonds, and William Cuss, who bring varying levels of experience to the table. Riddles is due to retire on 10 July 2025 though – while it’s always disappointing for a team to lose valuable experience, the remaining team of three will continue to manage the fund using the same investment approach.

Zoe Deady, who joined the team in 2021, is also a dedicated European smaller companies analyst. There’s a broader team of analysts to call upon too, alongside the research of other teams at Barings, including the Pan European and Global teams.

Process

Williams has followed the same investment process for many years – investing in companies he believes can grow earnings steadily, but where the shares can be bought at a lower price than the earnings potential suggests they should be.

Williams instils this focus across his team. They look for smaller European companies they believe are in good financial shape, have low levels of debt, and are run by quality management. The overall focus is ‘stock selection’, which means they focus on the prospects of individual companies and invest in those they believe will do well regardless of what’s going on in the economy.

The managers only invest in a company if they believe its share price can rise by at least 40%. If the shares hit their price target, the team either sells some shares and takes the profits, changes the price target if they think there’s further room for growth, or sells fully and invests in a different opportunity. If the share price falls by 20% the team sells the investment and moves on. We like the team’s disciplined investment approach, which has served investors well over the longer term.

Currently the fund is focused on financials, industrials, which is a sector made up of a range of different businesses, and companies that could benefit from discretionary consumer spending. Sectors like real estate tend to be avoided as companies here don’t often meet the quality and growth characteristics the managers look for.

Recent new investments include Almirall, a Spanish pharmaceutical group, which has developed a leading franchise in dermatological treatments, with new treatments increasing sales. Wendel, a French investment company, was also added, as the managers believe it could benefit from a restructure.

In keeping with the managers’ process, shares in chocolate maker Barry Callebaut were sold after they fell 20%. The company’s profits have come under strain from rising cocoa prices. This was the right decision for the team as the shares continued to fall after being sold. German sportswear company Puma was also sold after disappointing sales.

Culture

We view Williams as the key manager behind this fund, and currently most of our conviction lies with him. But we’re satisfied by the fact he's built a robust and collaborative team around him. All team members follow the same process, and they're encouraged to bring challenge and debate to each other's investment ideas, which we think is important.

The team are also influential throughout Barings, among other analysts and portfolio managers, which reflects their strength and fund management abilities.

ESG integration

Barings believes that incorporating ESG (Environmental, Social and Governance) factors into its analysis provides a more thorough understanding of the complex issues, risks and value drivers that may impact its funds over time. All Barings fund managers incorporate ESG criteria into their investment processes, with the aim to improve returns. They use an ‘ESG assessment’ to identify improving or deteriorating ESG standards, and this can impact the assessment of a company.

Barings fund managers discuss ESG issues when they meet companies. The manager or analyst responsible for the financial analysis is also responsible for the ESG analysis, which means it’s fully integrated into the investment process. They generally prefer to engage with companies, rather than exclude them completely, but the firm will not knowingly invest in companies that produce, stockpile or use controversial weapons.

While Barings continues to develop its approach to ESG, the team on this fund has integrated ESG factors into their work for several years. They use nine key topics to help assess a company’s ESG impact, which could highlight businesses that use more sustainable practices and can thrive over the long term. This may help uncover risks that are less obvious through more traditional company analysis.

Cost

This fund is available at an annual ongoing fund charge of 0.82%, but we've secured HL clients an ongoing saving of 0.10%. This means you pay a net ongoing charge of 0.72% and makes the fund one of the lowest-cost actively managed funds available in the European Smaller Companies sector through HL.

The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies, except in the HL Junior ISA, where no platform fee applies.

Performance

Since Williams became the lead fund manager in January 2005, the fund’s returned 623.98%* versus 544.66% for the average fund in the IA European Smaller Companies sector. Over the long term, we expect the fund to hold up better than the broader market when it falls but not keep up quite as quickly when it rises. Please remember that past performance is not a guide to future returns.

More recently over the past year, the fund has fallen slightly by 0.03% compared with growth of 2.22% for the average fund in the sector.

The fund performed well in 2024 and better than the sector, but 2025 so far has been tougher. This is partly down to the fund’s style. The growth style of investing hasn’t worked as well so far this year, while value investing – which can consist of companies or sectors that have fallen out of favour or are considered lower quality – has tended to work better. For instance, defence, construction, and materials companies have performed well so far this year, but the managers don’t tend to invest as much as some other funds in these areas.

Companies that rely more on discretionary consumer spending, such as jewellery brand Pandora and sports company Puma, were also weaker.

Stronger performers included Lottomatica, an Italian gaming operator, and Euronext, an operator of stock market and bond exchanges.

Over the longer term we feel the fund could benefit from an experienced team and robust investment process. The valuations of European smaller companies also look attractive compared with larger ones, and this could benefit share price performance if company earnings and the wider economic backdrop improves. As always though, there are no guarantees.