Most investors look to the UK to gain exposure to small and medium-sized companies. Yet this means missing out on an array of opportunities overseas; Europe included. Ongoing economic woes means the continent has been overlooked in recent years, yet many smaller businesses have continued to flourish and long-term investors willing to ride out periods of volatility have been rewarded.
The Baring Europe Select Fund offers investors a way to access this often overlooked area of the market. Nick Williams, the fund's manager, seeks companies with strong balance sheets and good track records of profitability, but whose future prospects are not fully reflected in the valuation of the shares.
The manager has built an excellent long-term track record and since assuming responsibility for the fund in January 2005, it has grown by 318%* compared with 219.4% for the average fund in the sector. Although please remember past performance is not a guide to future returns.
|Annual percentage growth|
| May 11 -
| May 12 -
| May 13 -
| May 14 -
| May 15 -
|Baring Europe Select||-13.0%||27.0%||19.6%||10.9%||5.7%|
|IA European Smaller Companies||-11.7%||20.7%||21.3%||8.5%||4.0%|
Past performance is not a guide to future returns. Source: Lipper IM to *03/05/2016.
Recently, chemical, energy and mining stocks have performed well following a difficult period. Nick Williams feels these sectors are influenced too heavily by shorter-term economic issues. The fund therefore has little exposure to these areas meaning it has missed out on some of the recent gains. Over the past year, however, the fund has outperformed the sector and benefited from investments in Paddy Power, the Irish sports bookmaker, and Chr. Hansen, the Danish bioscience company.
Paddy Power performed well after announcing a merger with Betfair and the manager has since taken profits. He expects to reduce the investment further given the company will no longer sit in the smaller company universe following the merger.
Elsewhere, recent additions to the portfolio include Elis, the French-based linen rental business, and Carl Zeiss Meditec, a German medical technology firm.
Going forwards, the economic backdrop remains supportive of European smaller businesses, in Nick William's view. The region is only in the early stages of its economic recovery; quantitative easing from the European Central Bank should act as a tailwind for the market; while the low interest rate environment should benefit companies looking to borrow capital in order to expand and grow. Valuations also remain attractive compared with their history and against the average for larger companies.
Our view on this fund
We feel this fund offers something different to the majority of European funds that place greater focus on larger companies, although investing in smaller companies is a higher-risk approach. With more than two decades of experience investing in European shares, we believe Nick Williams has one of the strongest track records in the IA European Smaller Companies sector. Over this time he has developed a disciplined investment approach to which he and his team stick to rigorously. Our analysis suggests good stock selection has been the key driver of returns over the long term.
The fund currently features on the Wealth 150+ list of our favourite funds at the lowest ongoing fund charge. Please note an annual charge of 0.45% also applies to hold this fund in our Vantage Service.
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