FP CRUX European Special Situations - a look back at 2018
Kate Marshall | Wed 23 January 2019
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- Richard Pease is one of our favourite managers for investing in Europe
- It's been a tough year for European markets
- This impacted the fund's performance, but we're still optimistic about the long-term prospects
Our view
Richard Pease has unrivalled knowledge of investing in European companies. With almost three decades' experience under his belt, he's met thousands of companies and built a robust and easy-to-understand investment process.
We've met the manager on numerous occasions and he's as passionate about finding great companies as he's always been. He won't get it right every time though, and his FP CRUX European Special Situations Fund went through a weak patch last year.
Over the longer term our analysis shows Pease has got one of the best records of picking some of Europe's strongest-performing companies. This isn't a guide to how the fund will perform in future though.
We think this fund is a superior choice for investing in Europe and it also provides exposure to one of the best stock pickers in the industry. It's currently on the Wealth 50 list of our favourite funds.
Performance - a review of 2018
2018 was a tough year for most global stock markets. Europe was no exception and its market fell 9.5%.* Politics have become more divisive in many parts of the world and a number of populist parties gained popularity across the continent, which added to the market volatility.
It meant all European funds lost money last year. But FP CRUX European Special Situations went through an even tougher time and fell 15.2%. Past performance isn't a guide to future returns.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Dec 13 -
Dec 14 |
Dec 14 -
Dec 15 |
Dec 15 -
Dec 16 |
Dec 16 -
Dec 17 |
Dec 17 -
Dec 18 |
|
| FP CRUX European Special Situations | 1.6% | 13.2% | 21.4% | 20.9% | -15.2% |
| FTSE World Europe ex UK | 0.2% | 5.3% | 19.7% | 17.5% | -9.5% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2018
This is partly because the fund doesn't invest much in sectors that held up better. Large oil & gas companies were some of the best performers, helped by a rising oil price earlier in the year. Richard Pease has always tended to avoid them though. They usually need to spend a lot on new, or the upkeep of existing, equipment, which increases costs, and their profits are closely tied to an unpredictable oil price.
A lack of exposure to luxury goods and high-growth tech companies also didn't help. Neither did a focus on medium-sized companies, which didn't do as well as larger ones. But over the long run we think medium-sized businesses, along with higher-risk smaller companies, offer a lot of growth potential. Our research shows Pease has added a lot of value in this area of the market over the long run.
There were a few issues with individual companies as well. This includes Spie, which completes certain work or services, such as construction and electrical work, on behalf of other companies. It acquired another business, which increased Spie's debt levels. Other investors saw this as a bad thing. But Pease thinks the acquisition will eventually prove valuable and the company will reduce its debts.
Outlook
Even the most well-respected fund managers go through weaker periods of performance. But we have faith in Richard Pease to deliver the goods for investors over the long run.
He continues to invest in companies that sell niche products and services that others struggle to replicate. This could stop any competition overtaking them. And a lot of these companies don't just do business in Europe. They also sell their products overseas, including higher-growth regions of the world, so they don't only rely on consumers within Europe.
Breakdown of company sales
Source: CRUX, correct at 31/07/2018.
Pease invests in a fairly small number of companies that he thinks can make a real difference to performance over the long run. We like this approach, though it increases risk compared with a fund that invests in lots of companies.
FP CRUX European Special Situations Key Investor Information