- One of the few European funds to mainly focus on income rather than growth
- Andreas Zoellinger has built a good record investing in this part of the market
- He looks for resilient businesses with the potential for dividend growth
We think the BlackRock Continental European Income Fund could be a useful way to diversify an income portfolio, or the European part of a wider investment portfolio. Most European funds focus on long-term growth, but this one's different given its aim to pay an income and greater focus on lowly valued companies.
We think Andreas Zoellinger, the fund's manager, follows a disciplined investment approach that he's implemented to good effect over the years. He also has a good record of growing the fund's income over time. The fund’s current yield is.4.27%, which is attractive against the 3.16% yield offered by the FTSE World Europe ex UK Index, though yields are variable and not an indicator of future income.
There have been a number of changes within BlackRock's European equities team in recent years, including the loss of Zoellinger's co-manager Alice Gaskell in 2018. That said, we think the team remains well-resourced and we're encouraged he continues to work alongside other experienced investors.
The fund doesn't currently feature on the Wealth 50 list of our favourite funds. We think Zoellinger has a good track record and the potential to deliver attractive returns for investors over the long term. However, we feel we already have a strong line up of European fund managers on the Wealth 50 who have exceptional track records and in which we have high conviction.
Keeping things simple
We like the fact Zoellinger tries to keep things simple. For this fund he looks for quality companies he thinks are financially strong. This could provide them with some resilience, even when times get tougher for the wider economy or other businesses, and the potential for dividend growth.
He broadly splits the fund into three buckets. The first includes companies that offer a higher dividend yield than the average. This means they pay an attractive income now, but have less potential for growth, and currently includes telecoms, utilities, infrastructure and real estate businesses.
Secondly, he invests in businesses with slightly lower yields than those mentioned above, but the potential for steady dividend growth. Many investors have favoured this type of business in recent years and means their shares don't offer as much value as they used to. As a result, Zoellinger hasn't found as many new opportunities for this part of the fund recently, but he still has core holdings in big, multinational, dividend-paying companies, such as consumer goods company Nestle and pharmaceuticals firm Roche.
The final bucket is made up of unique franchises. These businesses often do something that's hard to replicate by others, or simply do it better. They have lower yields, but high dividend growth potential. LVMH, which owns some of the world's best-known luxury brands including Louis Vuitton, and ASML, which makes semiconductors that are used in electronic circuits, feature here.
Has this helped performance?
Zoellinger aims to invest in a mix of companies from across the three buckets at all times. He thinks this gives the fund the potential to do well across a full economic cycle.
So far it's been a success. The fund's grown 125.2*% compared with 82.1% for the FTSE World Europe ex UK Index since launch in May 2011. And our analysis shows the fund has tended to hold up better than the broader market when it falls. It hasn’t gone up quite as quickly when it has risen though, and we're yet to see how the fund fares in a severe market downturn. Please remember past performance isn’t a guide to future returns.
Financial companies currently make up the largest part of the fund, at 28.6%. The manager has avoided banks though as he thinks they're too volatile. This has recently been the right call and helped performance. Instead he focuses on insurers, including Allianz, Scor and Zurich Insurance, and other diversified financials, such as Deutsche Boerse, the German stock exchange.
|Annual percentage growth|
| Oct 14 -
| Oct 15 -
| Oct 16 -
| Oct 17 -
| Oct 18 -
|BlackRock Continental European Income||11.9%||20.0%||16.1%||-7.3%||13.2%|
|FTSE World Europe ex UK||5.2%||19.7%||19.9%||-5.6%||11.5%|
Past performance is not a guide to the future. Source: Lipper IM to 31/10/2019
Please note this fund takes charges from capital, which can boost the yield but reduces the potential for capital growth.
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