The Europe ex UK sector is the only equity sector to have produced a negative return for investors this year and the average fund manager has underperformed the European indices, according to Standard & Poor’s (S&P) Fund Services.
The average fund in the sector is down 4.5% year-to-date. The next weakest equity sector is North America, which is up 2.2%. Only 15 out of 107 funds in the Europe ex UK sector beat the return on the FTSE Eurofirst index over the same period (0.6%).
S&P says the returns are partly a function of the weakening of the euro against sterling, though this trend has reversed over the last month. Peter Fuller, a director of European research at S&P, says it is also because many managers were positioned in large-cap, defensive stocks. (article continues below)
He adds: “When managers realised that the cyclical surge had run its course, they assumed the next move would be into higher quality, good growth stocks as markets moved back to fundamentals. But this did not happen.”
Fuller says that volatility has seen all risk assets sold off regardless of their “defensive” qualities. He adds that there have been no “safe” areas: “Most managers are simply battening down the hatches and allowing cash to accumulate. There is a general trend for managers to move up the capitalisation scale, but it is not as profound as would be expected.”