Mark Dampier: Broaden your horizons with a Europe-wide fund
Saturday 09 April 2011
Regular readers of this column will know I have highlighted the stock-picking skills of Harry Nimmo, manager of Standard Life's UK Smaller Companies fund, on a number of occasions. I remain a great fan of Harry's for exposure to the UK, but I have recently discovered the talents of another fund manager in Standard Life's Edinburgh offices. Just over three years ago, Ken Nicholson launched their European Smaller Companies fund. Although it has only been going a relatively short time, I believe it is worth a closer look, even though Standard Life themselves have done relatively little to draw attention to it. That is likely to change, but for now it remains small at around €70 million in size.
Slightly unusually this is a pan-European fund, meaning it invests in the UK as well as in continental Europe. Historically, pan-European funds haven't been terribly successful in capturing investors' attention as people tend to consider the UK and Europe as two entirely separate investment universes, purchasing UK funds for UK exposure and European funds for exposure to companies there. Thus many pan-European funds have been ignored.
Yet it would be wrong to dismiss a fund on this basis, especially one that has performed so well. Indeed, Standard Life European Smaller Companies has kept up with Nimmo's flagship fund since its launch, albeit with the tailwind of a weakening pound against the euro – something that adds an extra dimension of risk to the fund for UK investors.
Presently the fund has around 30 per cent in the UK, roughly in line with the benchmark, and large weightings in Germany and Switzerland. Mr Nicholson, who has been with Standard Life for more than 12 years, is quick to point out that European smaller companies are even less researched than UK ones, allowing a hardworking fund manager huge scope to uncover good value shares and outperform, especially given a concentrated, unconstrained approach such as his. To date, outperform is exactly what he has done, successfully whittling down more than 1,000 companies across 16 countries to just 40 to 50 high-conviction stocks for his portfolio.
Like most Standard Life fund managers, Mr Nicholson has the assistance of an in-house screening tool called the "Matrix". This looks at data on all the stocks and highlights those with strong upward momentum to their earnings revisions, cheap valuations, and where company directors are buying stock. This helps flag up some ideas for him to research in greater depth, though in relation to director buying Mr Nicholson finds it is a less valuable indicator on the continent than in the UK.
As well as attending around 250 company meetings a year he speaks to local brokers who are his ears and eyes on the ground. With such a vast area to cover he feels this network of contacts really helps to add value to the fund.
One of the things I like about Standard Life's approach to UK smaller companies is the consistency they have provided over the years in an area that can be extremely volatile. It looks like Mr Nicholson is repeating this in the field of European smaller companies, a similarly volatile area plagued by fund manager inconsistency. If this continues to be the case, I would suggest investors ignore the pan-European label and consider investing in the fund.
While small companies in Europe are more expensively rated than their blue-chip equivalents, with so many stocks to choose from there will always be forgotten gems to be discovered. Similarly, this fund has been hidden away, but I for one will be following it closely.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
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