TM CRUX European Special Situations – September 2020 fund update

Kate Marshall | Thu 24 September 2020

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Richard Pease has an enviable track record of investing in Europe and proven himself to be an astute stock picker
As part-owner of CRUX Asset Management, we think he's incentivised to perform for investors
We like the disciplined investment approach he's used throughout his investing career
The fund is on our Wealth Shortlist of funds chosen by our analysts for their long term performance potential

How it fits in a portfolio

TM CRUX European Special Situations aims to grow investors' wealth over the long term by investing in European companies of all sizes. This includes large, medium-sized and smaller businesses. The latter could boost growth because these companies are at an earlier stage of their development, but that also makes them higher-risk. The fact the fund invests in a relatively small number of companies is also a higher-risk approach. We think the fund could be used as a way to diversify the European part of an investment portfolio, or a broader global portfolio focused on long-term growth.

Manager

Richard Pease is a fund manager we've rated highly for many years. He's invested in European companies for more than three decades and built impressive knowledge of the market over this time. He ran the Jupiter European fund from 1987 and later joined Henderson in 2001 where he ran a number of European funds, including launching the European Special Situations Fund in 2009. He took the fund with him after he helped to set up the investment boutique CRUX Asset Management in 2015, and the fund became the group's flagship product.

Pease isn't a one-man band when it comes to running the fund though. He has a team of investors around him, including co-manager James Milne and research analyst Roland Grender, to help look for what they think are the best investment opportunities. We think each member of the team brings different skill sets to the fund, which should also lead to a healthy dose of challenge and debate.

Process

Pease is a true stock-picker at heart. He's steadfast in his focus on the prospects for individual companies, instead of wider economic events that are less likely to impact share prices over the long run.

For this fund he uses the same investment process that's been in place since he started his investing career. The companies he invests in should generate strong cash flows, recurring revenues, and have little or no debt. He likes businesses that do something unique and offer a product or service that other businesses struggle to replicate or do better. They should also be run by a management team with a proven track record of running a successful business, which also typically owns part of the business, making it more likely their interests are aligned with other shareholders.

Pease invests in companies of all sizes. Larger, well-established companies can be better at fending off competition because they're able to keep costs lower, while smaller ones often grow quicker because they're more nimble and can develop new products at a quicker pace. He often likes companies that are based in Europe but do business across the globe, so they're not only dependent on customers in the countries they're based.

We recently spoke to the manager about changes he's made to the fund this year. He's sold a number of companies where he believes the financial strength or management team has weakened, or where debts have increased. Some have been sold due to new problems arising from the coronavirus crisis. Examples include auto-parts companies Continental and Nokian Tyres, and lift and escalator manufacturer Kone.

Other businesses with stronger finances and management teams, and business models that could prove resilient in difficult markets, have been added to the fund. This includes eyewear company EssilorLuxottica, luxury goods business LVMH, and software businesses SoftwareONE and SAP.

Culture

We think Pease and his team are well-incentivised to deliver good returns for investors. Pease is a founder of CRUX Asset Management, while Milne and Grender are also shareholders, which should ensure they want the best for both the business and investors. Part of their remuneration is also based on fund performance, so again they are focused on investor outcomes.

Pease is a director at CRUX and lead or co-manager of a number of European funds. While this increases his responsibilities, each of his funds is focused on European equities and they are run using the same strategy that has been in place for many years.

Overall, we think the set up at CRUX is attractive. It focuses solely on European and UK equities and is home to a close-knit investment team. As a boutique investment house, the managers can maintain flexibility over their investment approach.

Cost

This fund's annual ongoing fund charge is 0.88%, but after a 0.14% saving it's available at 0.74% through the HL platform. This makes it one of the cheapest actively managed funds in the European sector available through HL. The saving is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

Pease has an enviable track record of investing in Europe. His funds have performed better than the broader European stock market over the length of his career*, though past performance shouldn’t be seen as a guide to the future.

Our analysis suggests he has a good stock-picking record, and many of the companies he's invested in have gone on to perform well regardless of their size, or what sector or country they're located in. Over longer periods, his funds have tended to hold up better in more turbulent markets, though this won't necessarily happen in the future.

More recently, and over the past couple of years, TM CRUX European Special Situations hasn't performed as well as the FTSE World Europe ex UK Index. This is partly because the share prices of smaller and medium-sized businesses have been weaker than larger ones.

In addition, many investors have favoured so-called 'growth' stocks, known for their perceived high-growth characteristics, or more stable earnings profile. While Pease invests in some growth stocks, he also invests in undervalued companies he believes have good prospects, but are yet to be noticed by others, so their shares can be bought at a lower price than he expects in future. Some of these businesses have been out of favour with many investors, putting pressure on the fund's performance.

Some individual stock mistakes have also been made. Companies including ISS, which provides a range of facilities services such as cleaning, property, catering, and security services, and Aurelius, which buys poorly-performing businesses with the aim of turning them around, haven't done well and have been sold from the fund this year.

Other companies, such as real estate company Aroundtown and testing company SGS, have also been weak, but the manager has held on to these stocks. He has carried out further analysis on these companies and remains positive about the longer-term prospects.

We maintain our longer-term conviction in the fund, but there are no guarantees about future performance.

Chart showing Richard Pease' career track record

Past performance is not a guide to the future. Source: *Lipper IM, HL to 31/08/2020.

Annual percentage growth
	Dec 15 - Aug 16	Aug 16 - Aug 17	Aug 17 - Aug 18	Aug 18 - Aug 19	Aug 19 - Aug 20
TM CRUX European Special Situations	27.1%	21.9%	2.0%	-1.8%	-1.4%
FTSE World Europe ex UK	15.4%	26.0%	1.4%	4.8%	0.7%

Past performance is not a guide to the future. Source: Lipper IM to 31/08/2020.

Find out more about FP Crux European Special Situations, including charges

FP CRUX European Special Situations Key Investor Information