Luxury brands deliver the goods
It may seem counter-intuitive but some managers of global share funds are making good money in European shares. Such success highlights the point that the domicile of a company's listing does not necessarily have much to do with how it performs globally.
Darren Cunneen, a research analyst with Morningstar, says some fund managers are thinking beyond the headlines and focusing on the fundamentals of the companies on offer.
The European stocks doing best have prestigious brands that sell their products and services globally, including to the developing world.
Sought-after brands such as the German car-maker BMW and the luxury British fashion retailer Mulberry have helped the Platinum International Brands Fund to an annualised three-year return to February 29, 2012, of almost 17 per cent. That's a stunning return by any measure but particularly so given the woeful returns on just about all global sharemarkets since the onset of the global financial crisis.
The Platinum International Brands Fund has an exposure to Europe of about 35 per cent, which depending on how Asia is defined is its biggest regional weighting, says the portfolio manager of the fund, Simon Trevett. The fund can invest in companies listed anywhere in the world that have well-recognised consumer brands in the markets where they do business.
He points out the three-year numbers are a ''bit distorted'', as it measures performance from when European share prices were at their lowest. Even so, over five years, the fund has produced a respectable return of more than 5 per cent when global shares returned almost minus 6 per cent.
European sharemarkets have suffered big outflows as frightened investors headed to the exits in search of safety.
The fund was able to benefit from buying shares in quality European companies at bargain prices, though it has also done well from a good number of non-European stocks.
''Outside of the debt-laden Western consumer world you have had quite the opposite - rising incomes in China, India, Asia and Latin America,'' Trevett says.
There are good companies listed in Europe with global brands which do most of their business outside of that continent and have been trading at low valuations, he says. Because of the demand in China for luxury cars, BMW is able to obtain a premium on what it charges for its cars there over what it charges in Europe, Trevett says. Another stock that has done well for the fund is Mulberry, the Britain-listed luxury leather goods and fashion maker that used to be a neglected small cap, Trevett says.
The fund bought the stock for about £2 and it is now trading at more than £20 ($30).
There has been a big surge in demand for luxury goods, he says, especially in China.
Consumers there value the heritage and the craftsmanship that go into many European luxury goods. Another strong performer for the fund is Tod's, the Italian luxury fashion company, which enjoys strong sales to inbound tourists to Europe.
The Franklin Global Growth Fund also has a big weighting to Europe of about 35 per cent.
Over the past three years it has produced an average annual return of almost 11 per cent.
Franklin's New York-based team held a mixed bag of European companies, including from Spain and Italy, and about 10 per cent in the relatively safe haven of Switzerland, Cunneen says.
The single best performer for the fund in the past three years has been the Italian oil and gas contractor Saipem, proving that good share-picking can still uncover profitable positions despite broader economic turmoil, Cunneen says.
Good returns are also being made by some funds that take a different view on Europe.
The Peters MacGregor Capital Management global fund has only about 5 per cent of the money invested in European shares.
''We still think that there is significant probability that one or more of the Club Med countries may exit the euro,'' the founder of Peters MacGregor, Wayne Peters, says.
The European Central Bank will fight to keep that from happening for as a long as possible, he says.
''All we have seen today is really only Band-Aid solutions,'' he says. The fund has more than 30 per cent of its fund in cash.
He says there is value in some of the European-based companies that have large and growing exposure to emerging markets.
''We expect that we will be more invested in Europe as time goes on,'' he says.
The fund's exposure is more heavily tilted towards the US, which is much further advanced in dealing with its economic issues than Europe, Peters says.
The fund produced an annual average of almost 23 per cent over the past three years.
The Macquarie Sharemarket International fund, which has a relatively high exposure to Europe of 36 per cent with a return over three years of almost 23 per cent, together with the Platinum International Brands Fund, rounds out the top-three place-getters in global share funds over three years.
James Soutter, the senior portfolio manager of the Perennial Global Shares High Alpha Trust, is another who thinks it is too early to return to Europe.
There is only about 15 per cent of the fund invested there and it does not own any European financial shares. It is also avoiding Italy and Spain.
It holds luxury brand shares listed in Germany and France, with most of its European exposure to Britain.