And Darwall’s approach has paid off over the years. He is in charge of the Jupiter European Growth Fund since April 2007 and has generated consistent outperformance basically since the moment Borges bought in 2009. Over the past seven years, it has returned a staggering 242%, compared to 150% for the MSCI Europe Growth Index. This year, the fund has exceptionally lagged its benchmark by almost 3%. But Borges isn’t worried, as he knows where the momentary underperformance comes from.
“The companies in the fund are dependent on [long-term] global trade and GDP growth. As growth expectations have come down, the fund has lost this much,” he explains. But on a longer term horizon, the fund has been generating Ferrari-like returns for the price of a Volkswagen. “The total expense ratio of the fund is 0.9%. It’s not cheap compared to other European equity funds, but it’s not expensive either,” says Borges.
It’s not all gold that glitters
So while Darwall combines great performance with average fees, and he has a sound excuse for the fund’s recent underperformance, Borges is set to continue his investment in the fund for years to come, isn’t he?
There is one aspect of the portfolio that worries him slightly. “The average P/E-ratio of the companies in the fund is aproximately 20, which is about 1.5 times the market average. It hasn’t always been this high, so we have become a bit concerned about it,” says Borges.
However, Borges has no concrete plans to exit the fund. “We have had these worries for a while, but 2015 was one of the best years ever of this fund relative to its peers, so if we had sold a year ago that would have been a costly decision. It shows it’s very difficult to time when to enter and exit a fund.”
“Besides, the manager is aware of the valuation premium of the fund, and we believe they will take action if they deem that appropriate,” Borges concludes.
