IT Insider: the trusts to replace Rambourg, revisited

Just over a year ago, I wrote an article suggesting shareholders might consider switching out of Gartmore European, following Guillaume Rambourg’s departure, and opt instead for either Jupiter European Opportunities or Henderson Eurotrust.

Plenty of water has passed under the bridge since then but a recent announcement that Rambourg is looking to launch a new hedge fund reminded me to look to see how that trade would have panned out.

The short answer is it would have paid off. Since 16 July 2010, Gartmore European shares have fallen by 15.4%, while Henderson European is down 4.5% and the Jupiter fund is up 2.4% (as of 4 October 2011).

However, quite a bit of that outperformance is a consequence of a widening discount for Gartmore European so John Bennett, Rambourg’s successor, has done a good job with the fund. Looking at the underlying net asset value (NAV) performance of the funds in the European sector over the past 12 months, the Gartmore fund comes out on top, with the other two in second and third place.

When Henderson acquired Gartmore earlier this year, Bennett stayed on. He had been head of Gartmore’s European team and has a long track record of decent performance built up during his days at GAM. He only moved to Gartmore just before Rambourg’s exit.

Normally, given that they have the same objective and fall under the same management house, I would be pressing for the merger of Gartmore European and Henderson Eurotrust but I would find it hard to choose between Bennett and Tim Stevenson as manager for a merged trust.

Their management style, with an emphasis on bottom-up selection of underpriced stocks with good prospects of growth, is similar but not identical. Right now they are both fairly fully invested; at the end of August, they were running with 1% net cash. There is only one stock common to the top 10 holdings of both trusts, though – Roche – and even here the weights are very different.

Stevenson runs a more concentrated portfolio, he is overweight industrials where Bennett is overweight healthcare, and Stevenson is most exposed to Germany whereas Bennett’s largest country allocations are to France and Switzerland. Basically, despite working under the same roof, they are free to invest with conviction and without the constraint of a house list of permitted stocks or sector allocations.

Alex Darwall at Jupiter benefits from the same freedom and I think this is a major contributory factor in the three managers’ excellent long-term performance record.

Of course, Europe is the focus of concern right now and most European funds are 20%-30% off their high for the year. It is interesting that, with the exception of JP Morgan European Income (which has 40% of its portfolio invested in the UK), these three funds have proved more defensive in the sell-off than their competitors.