The Fidelity fund is rated by FE as a 4 Crown product. The FE crown rating ranks funds based on alpha, consistency and volatility.
Despite a strong performance over three-years, the Invesco fund is awarded a 3 Crown rating.
“This could be due to the higher volatility of the Invesco fund over the measured periods,” Ng said.
A look at key volatility measures:
Source: FE Analytics. For the period 31 May 2002 to 31 May 2015 rebased in US dollars
“Higher volatility might be from the strong focus on peripheral countries and cyclical sectors, where the fund managers foresee recovery and earnings improvement over the next few years.”
By comparison, the Fidelity fund manager favours companies with sustainable growth irrespective of the economic cycles. Hence, the portfolio is less volatile, Ng added.
A look at calendar year returns:
Source: FE Analytics
“In 2013, the Invesco fund did better in stock selection in major countries including France, Germany and the UK. The selection in industrials also delivered better performance.”
Commenting on the negative returns, Ng said in 2011, the Fidelity product had higher exposure in Germany and less to the UK relative to that of Invesco’s vehicle, and that could be the reason for the underperformance.
“Also, the Invesco fund is positioned with more defensive stocks and that helped during the market downturn.”
Manager review
Fabio Riccelli has been managing the Fidelity fund since November 2008. Riccelli joined Fidelity in 1998 as an analyst and began his role as fund manager in 2004.
“Riccelli is a bottom-up stock picker, and is backed by a team of well-resourced analysts at Fidelity.”
He has also been managing the Fidelity Iberia and the Fidelity European Aggressive funds since October last year.
John Surplice and Martin Walker have been managing the Invesco fund since July 2003.
Surplice joined Invesco in 1995 and previously managed the Invesco Pan European High Income fund from 2007 to 2012.
Walker joined Invesco in 1999 and has also been managing the Invesco UK Equity fund since June 2008.
“Surplice has extensive experience in managing pan-European equity portfolios for retail and institutional mandates, while Walker has a stronger focus in managing UK equity portfolios.”
Fees
The total expense ratio (TER) or ongoing charges for the Fidelity fund was 1.93% for the year ended 30 April 2014. The TER for the Invesco fund was 1.97% for the year ended in August 2014.
“Charges of both funds are pretty much similar and in-line with the market level,” Ng said.
Conclusion
The Fidelity fund has a strong focus on stocks with a long-term sustainable growth strategy and hence could serve better as a core holding for European exposure in an investors global fund portfolio, Ng said.
The Invesco fund could be used as a satellite holding to maximise overall portfolio returns.
“The Invesco fund is positioned to benefit more than the Fidelity product if the European recovery goes well. The fund is positioned toward higher cyclical and peripheral exposures, which tend to benefit from a strong economic recovery.
