Europe is where it’s at. Wait …what? Just months after the Brexit shock, active mutual funds focused on the European continent are faring better than their counterparts in the United States, and could represent a way forward for beleaguered active management 401k fund flows.
“European equity funds with conviction and strong performance could lead the way in reversing outflows in the sector caused by a combination of Brexit, stretched valuations, and weak earnings that has sent investors elsewhere,” according to global research and consulting firm Cerulli Associates.
The Boston-based Cerulli notes that a study by S&P Global shows that 90 percent of active U.S. equity funds tracking the S&P 500 underperformed the index in the three, five, and 10 years to the end of June 2016. In contrast, 63.8 percent of active equity funds in Europe underperformed the S&P Europe 350 over three years.
“To put it in a more positive way, over 36 percent of active funds matched or beat the index,” Barbara Wall, Europe managing director at Cerulli, said in a statement. “Whether it is the result of the more disparate nature of the European markets or other factors, Europe clearly has more active funds outperforming than the United States.”
She points to companies such as Allianz Global Investors with its sizable funds that have outperformed over one, three, five, and 10 years.
“The funds’ clear sector stances, such as overweighting industrials, seem to have paid off. Some funds can achieve outperformance just by underweighting one major sector,” Wall added.
The performance of the finance sector over the past couple of years serves as an example, she argued.
“Amundi’s Europe Conservative fund has underweighted this sector, which makes up just 4.45 percnet of the portfolio. In the three years to September 2016 the fund gained 29.5 percent, compared with 18.4 percnet for the MSCI Europe, in which financials are 19.5 percent.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
