Interactive Investor

UK vs Europe: how funds and trusts have fared five years on from Brexit

23rd June 2021 09:51

Kyle Caldwell from interactive investor

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We reveal UK and European fund and trust performance since Brexit, and highlight the top 10 winners. 

Five years on from the Brexit vote European funds and investment trusts have, in most cases, outpaced UK funds.

Research by interactive investor, using FE Analytics, found over the period from 23 June 2016 to 17 June 2021 European funds and trusts beat their comparable UK sector in three out of four cases.

For investment trusts, the Association of Investment Companies (AIC) Europe sector returned 100.7% versus 64.2% for the AIC’s UK all companies sector. For smaller companies, there was a similar sized performance gap. The AIC’s European smaller companies sector returned 136.2% against 93.1% for the UK smaller companies trust sector.

The main European open-ended fund sector also had the upper hand. The average fund in the Investment Association’s (IA) European ex UK sector is up 77.4% versus 44.2% for the IA UK all companies sector.

The exception was smaller companies, with UK smaller company funds having the edge over European smaller company funds, with respective returns of 97.9% and 90.3%.

There is no direct comparison for equity income as there is not a dedicated European equity income fund or trust sector, due to a shortage of funds and trusts investing in this manner. But for the UK, funds and trusts with an income focus lagged. The AIC’s UK equity income sector returned 44.3%, while the IA’s UK Equity Income sector was up 31.4%.

The same performance trend has played out in UK and European markets. The MSCI Europe ex UK Index returned 79.1% over the period, while the FTSE All-Share Index gained 40.1%. 

Investors reducing exposure to UK has paid off

Brexit uncertainty led to billions of pounds exiting UK funds following the vote. Investors turned their attentions overseas and increased exposure to global funds. This proved to be a good call, as the average global fund is up 100.4% over the past five years.

The prospect of a no-deal Brexit, coupled with the Covid-19 pandemic, led both domestic and international investors to continue steering clear of the UK. The UK all companies sector was the worst-selling UK retail sector in 2016, 2017 and 2018.

As well as Brexit uncertainty, the UK market’s bias towards value shares, such as miners and financials, has also led to the market underperforming other regions, including Europe.

However, this has turned into a tailwind, as since last November’s vaccine announcements value shares have been firmly in favour and have outperformed growth shares. As a result, there are early signs that UK funds have started to come back into favour among investors.

European funds were also unpopular following the referendum vote. Figures from the IA show that more investor money exited the sector than was invested from June 2016 to February 2017.

From then on, the sector switched in and out of favour with investors – but in contrast to UK funds – there were not repeated investor withdrawals month after month. However, it is a sector that rarely tops the sales charts and instead tends to fly under the radar. One reason, perhaps, is the lack of technology companies listed in the region compared to the US market.

The overall best-performing European funds and UK funds 

In the immediate aftermath of the Brexit vote, markets fell heavily. The biggest share price fallers were smaller companies due to being domestically focused. The UK’s biggest companies proved, in the short term, to be more resilient, benefiting from being multinational businesses that make most of their profits globally.

But, as is common with other sell-offs, over time smaller companies recover their poise and, over the longer term, tend to outperform larger companies. The top 10 tables below, which showcase the top 10 Europe and UK fund and trust performers since Brexit, contain a number of smaller companies-focused strategies, particularly for the UK. 

Top 10 best-performing European funds or investment trusts 

Source: FE Analytics. Data from 23 June 2016 to 17 June 2021. 

Top 10 best-performing UK funds or investment trusts 

Source: FE Analytics. Data from 23 June 2016 to 17 June 2021. 

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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