Since the fund's launch at the end of 2015, the pair have delivered 75%, well ahead of all rivals in the Investment Association's Europe ex-UK sector. Marlborough European Multi-Cap comes closest, up 55% over the same period.
But the growth-focused investors are operating in a bearish environment: Bank of America Merrill Lynch's latest fund manager survey pointed to shorting European stocks as the 'most crowded trade' among managers focused on the region.
Brown said ‘there is not much to be enthusiastic about’ in Europe at the moment due to sluggish growth, ‘perilously’ low inflation, and political crises.
He said Italy had ‘not recovered in any way’ from a spike in bond yields last year and the ‘Macron bounce’ enjoyed by France was ‘firmly over’. In Europe’s largest economy, Germany, manufacturing is contracting and although it is ‘not quite in recession…things are not looking good’.
Economic contraction combined with chancellor Angela Merkel’s decision to stand down in 2021 just as far-right parties are gaining popularity means there are ‘twin semi-crises in Germany’, added the manager, speaking in an online presentation hosted by wealth manager Brooks Macdonald.
Brown puts the fund's performance down to its focus outside of the mega and large-caps that dominate European stock markets. Moreno and Brown instead focus on mid-cap companies with market caps between $2 billion to $20 billion that fit with their key themes, including ‘online’.
Moreno (pictured) argued that while US tech giants like Facebook, Apple, Amazon, Netflix and Google ‘get a lot of the headlines and plaudits... there is a lot going on in Europe’.
This is especially true in the financial technology space, he argued, where ‘the way financial products are consumed has changed enormously’.
‘Hargreaves Lansdown has done well over the last decade and we own some similar products in Europe,’ said Moreno.
‘Avanza (AZA.ST) in Sweden and FinecoBank (FBK.MI) in Italy - that is similar to Hargreaves Lansdown but has more growth ahead of it as markets are less developed,' he said.
Online retail is also on the fund managers’ radar but Moreno said generating profits in this area was a problem and poor margins meant the sector was littered with profit warnings.
He said that instead of investing directly, they had invested in companies connected with the growth of online retail.
This includes Swiss stock Interroll (INRN.S), which manufactures rollers with a motor inside that are built into the conveyor belts that transport parcels in warehouses and post rooms.
‘We have held Interroll for three years and it is a play on the move to online retail,’ said Moreno. ‘[The rollers] are sold into Amazon warehouses and other intralogistics systems…it is a small business with 10% of the market… but it is much bigger than all its peers and makes a superior roller. If one of the rollers jams it is a major issue for a warehouse, which could grind to a halt.’
He said Interroll was delivering a high return on capital and ‘benefits from the mega trend [of online retail] without us worrying whether Asos (ASOS) is going to do better than Zalando (ZAL.DE)’.
While Europe may remain out of favour for now, Moreno said investors should ‘not be put off by the horror stories’ as there were ‘great companies in Europe if you are willing to go through that larger investment universe’.
‘There are fantastic growth opportunities,’ he said. ‘There are world leaders quoted in Europe that are going to double, triple, quadruple their earnings over five years.’