Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
Smaller and medium sized companies can offer more attractive growth opportunities than their larger rivals, but it requires high quality research and a talented stock picker to fully exploit the potential.
The Barings Europe Select Trust is a great example of what is possible when these different elements come together, which is why it has recently been added to Fidelity’s Select 50 list of handpicked funds as part of the latest quarterly update.
It operates in the European Smaller Companies sector and is regarded by Fundhouse, Fidelity’s fund selection partner, as one of the strongest offerings in the peer group. Manager Nick Williams is highly experienced and is backed up by a well-resourced team that produces good quality proprietary research for him to base his selections on.
Objective and approach
The Barings Europe Select Trust follows a Growth at a Reasonable Price (GARP) approach and provides exposure to small and mid-cap European equities. Its holdings are fairly equally weighted to offer a good level of diversification and the 20-year track record shows that the strategy has held up across a number of different market environments.1
Williams and his team have a methodical investment process that is designed to identify unrecognised growth opportunities without overpaying. They think that earnings revisions and changes to the quality of the earnings over a long time period are the key drivers of a company’s share price.
Barings’ selection process starts with a stock screener that looks at a number of key metrics based on the GARP strategy. The management team then carries out extensive primary research, which includes several hundred company visits a year, as well as industry analysis and a detailed look at the fundamentals.
The underlying portfolio
At the end of June the fund held a total of 97 different holdings with the ten largest positions only accounting for 16.69% of the assets, none of which exceeded two percent. It was also well diversified across sectors and countries, where the two main weightings were Germany and France with allocations of around 15% each.2
Another key feature is that the fund must invest at least half of its assets in stocks that exhibit improving environmental, social and governance (ESG) characteristics. The underlying analysis is an important driver behind the team’s policy of active company engagement where they seek to influence ESG practices and improve the disclosure.3
Barings Europe Select Trust - top 10 holdings
- Koninklijke Vopak
- Nordnet
- Avolta
- ASR Netherland
- FinecoBank
- CTS Eventim
- Hera
- Scout24
- Rational
- DKSH Holding
Source: Fidelity International, as at 30 June 2024
What are the manager’s latest views?
Writing in the interim accounts at the end of February, the manager said that European smaller companies’ valuations are low, in a historic context and compared to larger companies, while corporate profits proved more resilient than might have been feared over recent years.4
“Our Growth at a Reasonable Price approach remains unchanged, focusing on reasonably valued companies whose profit growth potential is demonstrably improving. We anticipate that company-specific earnings revisions will increasingly determine share price developments, with opportunities for stock selection more widespread.”5
Performance and costs
According to analysis by Fundhouse, the Barings Europe Select Trust has outperformed its benchmark over the last 10 years and since inception by 0.6% and 2.3% net of fees. They say that the management team has applied their process consistently and has invested in companies that have achieved earnings growth ahead of expectations.
The I GBP accumulation share class has an ongoing charges figure of 0.81%, which Fundhouse believe offers good value for money given the long-term record of outperformance.
Who is it suitable for?
As with other small cap funds, it is likely to require a long investment horizon of ten years or more. This should allow investors to benefit from the higher returns that should come from the above-average-risk nature of the exposure.
More on Barings Europe Select Trust
(%) As at 12 Aug | 2019-2020 | 2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 |
|---|---|---|---|---|---|
Barings Europe Select Trust | 3.2 | 29.8 | -22.9 | 3.4 | 10.8 |
Past performance is not a reliable indicator of future returns.
Source: FE from 23.8.19 to 23.8.24. Basis: bid to bid with income reinvested in GBP. Excludes initial charge.
Source:
1,2 Fundhouse, August 2024
3,4,5 Barings UK Unit Trusts, Interim Report & Unaudited Financial Statements, 29 February 2024
Important information -investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. This fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. This fund invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one ofFidelity’s advisers or an authorised financial adviser of your choice.
