Fund spotlight: CRUX European Special Situations Fund

by Dzmitry Lipski from interactive investor |

interactive investor's analysts give an update and view on the CRUX European Special Situations Fund.

Expectations of a recovery in the European economy were high at the beginning of last year. Easy monetary policy from the European Central Bank (ECB), falling unemployment and benign consumption boosted investor optimism in its turnaround potential. 

However, economic indicators have begun to deteriorate. Trade tensions between the US and China, slowing economic growth and uncertainty around Brexit led to an equities market sell-off toward the end of 2018.

While an uncertain economic outlook in Europe persists, it is worth remembering the international nature of European companies, where approximately 50% of corporate revenue comes from outside the region. This suggests that, while investors should remain cautious in the near term, the main focus should be on individual company prospects rather than on the wider economy. 

The fund

Despite economic challenges on the Continent, recent market volatility has created plenty of interesting opportunities for highly skilled stock-pickers, such as Richard Pease and James Milne, managers of the CRUX European Special Situations Fund

By following a bottom-up approach to investing (the analysis of individual stocks rather than macroeconomic cycles), the managers aim to identify companies that have the quality of both product and management and are robust enough to perform well in most economic and market conditions.

They prefer global rather than domestic companies which they believe are more sensitive to the broader economy. As a result, the fund is significantly less 'European' than its benchmark, the FTSE World Europe ex UK index.

The managers aim to achieve long-term capital growth by selecting companies based on their fundamental characteristics such as capital-light business models, high recurring revenues and incentivised management with meaningful economic exposure to their businesses. 

What's in it?

There's a firm focus on companies operating in defensive niche or specialised sectors, with high barriers to entry and pricing power from competition. Nordic facilities management firm Bravida and French pharmaceuticals business Sanofi (EURONEXT:SAN) exemplify the CRUX investment approach. 

When constructing their portfolio, the managers follow a purely bottom-up fundamental approach with a quality growth bias, avoid extreme bets and carefully consider valuations.

Their 'Best ideas' portfolio is relatively concentrated with 60 holdings as at 31 March 2019. It currently has around £1.7 billion in assets under management and 26.5% of its assets invested in Germany. The next biggest country allocations are Switzerland 13.3% and France 13%. 

The fund's top sector allocation is commercial and professional services at 20.2%, followed by capital goods 17.4% and Pharma at 8.7%.  Among its top holdings are German commercial property business Aroundtown (XETRA:AT1), global healthcare giant Novartis (XETRA:NOT) as well as chemical distributor Brenntag (XETRA:BNR)

How does it perform?

  01/05/2018 - 30/04/2019 01/05/2017 - 30/04/2018 01/05/2016 - 30/04/2017 01/05/2015 - 30/04/2016 01/05/2014 - 30/04/2015
FP CRUX European Special Situations Fund -1.02 6.79 28.42 6.85 10.20
FTSE World Europe Ex UK Index 2.54 7.43 28.80 -3.92 7.02
IA Europe Ex UK Sector -0.35 7.75 26.62 -0.51 6.57

Source: Morningstar as at 30th April 2019. Total returns in GBP

The fund is expected to outperform over 3-5 years in most market environments, and this has historically been the case. 

In the shorter-term, the fund might underperform in strong macro environments and bull markets led by high beta stocks (those that typically react strongly to positive conditions in the broader market) and outperform in more challenging markets given the high-quality nature and low cyclicality of the businesses in the portfolio. 

The ii view

FP CRUX European Special Situations Fund features on the ii Super 60 list as a European Equities Adventurous recommendation. The fund provides exposure to high quality European companies of all sizes selected by highly experienced fund managers. The strength of the managers' stock-picking skills, exemplary record and interests that are directly aligned with fund holders – both managers invest their own money in the fund – make this a good choice. The unconstrained (managers can invest across many asset classes and sectors) and concentrated nature of the fund means it is higher risk and best suited as a satellite holding in a well-diversified portfolio.

If you enjoyed this article, you may also like other funds picked for interactive investor's Super 60 range of high-conviction investment ideas. Click here to find out more.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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