Fund update: Euro small cap fund profits from avoiding southern Europe

Against a crisis-ridden backdrop for his sector, Dave Dudding, fund manager of the Threadneedle European Smaller Companies fund, ploughs a winning furrow.

During the past six months the fund is up 1.7% compared with a fall of 8% in the HSBC Smaller Companies ex UK index.  A strong first quarter for the fund cushioned a fall of 7.3% in the second three months, but even here, Dudding fared far better than the index which slumped 15.5%.

The key to success is a focus on high quality companies with pricing power and healthy finances. His top holding is Swedish Match, a tobacco company specialising in cigars, snuff and matches. No less than around 90% of the £760 million fund is invested in northern Europe and Scandinavia. Debt-laden southern Europe scarcely gets a look in.

The significant underweight in financials has grown even further since the start of the year – Dudding now has just 4.1% there, a sliver of its 22% weighting in the index. Healthcare (19.5%) is the largest sector overweight through investments in stocks such as Diasorin, an Italian company specialised in diagnostic testing and French company Virbac, a veterinarian pharmaceutical group.

Over five years the fund has returned 72.3%, comfortably outperforming the index returns of 43.5% and Dudding holds an A rating from Citywire.