This sector has benefited from more favourable market conditions in Europe recently, and the average...
This sector has benefited from more favourable market conditions in Europe recently, and the average one-year return for the Equity Europe ex-UK sector has been around 26%. Smaller companies funds have benefited from the upturn in market sentiment - and possibly, as noted in the S&P Europe sector update, an increase in investor appetite for risk - and have seen average returns over twice that of their large-cap focused counterparts. Although the funds in the small-cap sector number only eight, they are all ranked within the best 15 performing funds in the Europe ex-UK region over the period. In fact, of the five best performing funds in the region, all are smaller companies funds, and three have been assigned S&P fund management ratings indicating fund management and process quality.
Notable among these is the top- performing Fleming Frontier Euro Discovery fund, which invests in Europe ex-UK stocks with a market capitalisation below $150m. The fund is AAA-rated by Standard & Poor's, and their analysts cite that the fund's successful track record is gained through "consistently high technology exposure selected from the group's growth/value blend approach." The fund is slightly more volatile than the average fund in its sector - though not excessively so - but has achieved first quartile returns in three out of the last five discrete years.
Another top performer was the Gartmore CSF Continental European Smaller Companies, A-rated by Standard & Poor's. The fund gained almost 60% during the last year, bouncing back well from a difficult period the year earlier. S&P noted in January 2003 that "despite poor performance over the past year, fund manager Jonathan Sharpe is reluctant to change the style - which is stock-specific with a focus on identifying unexpected growth. The most important lesson learned from this difficult year has been to look more closely at relative, rather than absolute returns. This is more difficult in a falling market and the manager failed to take profits when holdings had outperformed relatively, despite showing no improvement in share price." The fund's rating fell to an A at this stage, but since the fund's performance has rebounded in the period since then, it may be that the fund has benefited from the arrival of a new analyst at that time, as well as increased use of the risk assessment team, as outlined in the S&P report.
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