You are here: Home - Investing -

Fund of the Fortnight: Standard Life European Smaller Companies

Written by:
Every fortnight our research experts highlight a fund from their top-rated list.
Fund of the Fortnight: Standard Life European Smaller Companies

For a fund analyst the Holy Grail is finding an experienced manager who is at the peak of their career, with a very good, meaningful, track record managing a low level of assets. This combination means that you have a manager with the experience of having been through at least one economic cycle, with the desire and drive to continue to develop their careers, whilst at the same time having the flexibility to implement investment decisions quickly. The importance of this last factor is not to be underestimated.

Standard Life European Smaller Companies’ manager Ken Nicholson has the above credentials. Nicholson joined the smaller company’s team at in 2000 and initially worked as an analyst on Standard Life’s UK Smaller Companies fund under the highly regarded Harry Nimmo.

In 2007, Standard Life launched a European Smaller Companies specifically for Nicholson. For historical reasons the fund has largely only been available in Continental Europe, where Standard Life’s footprint is currently far less prominent. As a result the fund has so far struggled to raise assets.

The fund invests in developed European companies including the UK. Performance to date has been impressive, indeed each year since the launch of the fund the manager has beaten the index. Over the entire period the fund has returned 95.95% versus the index return of 44.37% (21/11/13).

Nicholson scours developed Europe to look for companies which are able to grow their earnings organically at a faster level than that of the underlying economy. He takes an active approach to meeting management, visiting company premises in assessing businesses: in other words, good old-fashioned stock picking. Nicholson also makes allowances for the underlying trends in the stock market, a more difficult skill than might at first seem apparent.

Markets move in cycles and tend to put premiums on different types of businesses. Do you want balance sheet leverage to gear you to the underlying economy? Do you want balance sheet strength and robust earnings to protect you from exogenous uncertainties? So far in his investment career Nicholson has navigated these minefields. More importantly, he has been selective about when to change the underlying focus of his portfolio; making significant changes to a portfolio and getting it wrong is often the easiest and quickest way for investors to lose money – as money fund managers have found to their detriment in recent years.

A good example of this has been in the last 12 months. European equities have generally been unloved since the financial crisis and where investors have had exposure to the continent they have generally preferred those businesses with resilient earnings, especially those from overseas.

Towards the end of 2012 Nicholson believed that the premium being paid for these companies, versus the more cyclically exposed domestic companies, was extreme. He adjusted the portfolio accordingly and the fund has been position ideally for the rally in European equities this year. In 2013 so far the fund has returned 38.42% versus the index 31.31% (21/11/13).

Investors should not expect such perform to be repeated annually. Nevertheless it demonstrates the value that can be added by identifying and paying for a manager with the skill and capacity to consistently produce returns in excess of the benchmark.


Mark Lane is a senior research analyst at Bestinvest

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The savings accounts paying the most interest

If one of your jobs this month is to get your finances in order, moving your savings to a higher paying deal i...

Coronavirus and your finances: what help can you get in the second lockdown?

News and updates on everything to do with coronavirus and your personal finances.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
UK house prices leap £5,583

Average property prices in the UK have shot up in the past month, according to Sequence.