Winner: Best sub-$100 million Ucits product

FCM European Opportunities Fund was launched in January 2009 and has provided strong annual returns since inception of 13.73%.

The Ucits-compliant fund only invests in equities, bonds and cash and no other money market instruments such as money market funds. The majority of investments are made in Western Europe and Central and Eastern Europe, including Russia. Typically around 80% of equity exposure is in Western Europe with 10% in Central and Eastern Europe and 10% outside Europe.

Fixed income investments are solely euro-denominated and are only made in investment-grade corporate and government bonds. There is no use of short options or futures.

The overall goal of the fund is to participate on the upside of European equity markets while avoiding most of the downturns. Capital preservation is a key objective of the fund, says Fleming Family & Partners Capital Management.

The investment process combines tactical asset allocation with fundamental stock selection. The first step taken by the managers is to understand the macro environment for European stock markets and what stage of the cycle the markets are currently in.

Analysis of the amount of equity risk the fund should be taking in the current climate is decided and then the stock portfolio is constructed.

There is no style bias although the discovery of under-researched and early stage investment ideas through Fleming's own research – a mixture of country and company visits as well as desk research – is a recurring theme.

The time horizon for stock picks is typically between six and 18 months with return targets of an upside greater than 20% for small and mid caps and greater than 10% for large caps.

The size of equity exposure is predominantly top-down driven. This is the starting point for all investment decisions. Stock selection is predominantly driven by bottom-up factors.

Size of single stocks is on average 2.5% of net asset value (NAV) with a maximum of 10% of NAV set. The typical number of positions held in the portfolio range between 30 to 50.

The fund employs a dynamic two-step loss management. At alert level there is discussion, a watch list and a call with the management. The second stage is a ‘strict level' where a stock is removed from the portfolio.

There are, however, special situations where the stock is retained because there is an expectation of higher returns, When this happens, the stock is flagged in advance.

The portfolio managers, Reinhard Ploder and Guenter Ferstl, follow a top-down process in choosing stock. They say this method of selection is important as it defines the equity exposure. The process can also be described as a fundamental approach.

The managers look at two equally important areas. One is the macroeconomic environment and the other is the capital market environment. The first is important as it defines the strategic asset allocation while the latter is more influential on the tactical asset allocation for the managers.

Because of a long relationship with several broker and independent research providers, the portfolio managers have access not only to company research but also to economic research and strategists. The managers study these papers regularly and also talk to analysts and strategists on a regular basis.

When it comes to macroeconomic environment analysis, among the other things the portfolio managers look closely at the current status and future development of economic growth, interest rates, inflation, currencies, political environment. The managers evaluate these daily to ensure the assessments concerning the macro-economic environment are still valid or if some parameters need to be modified or if indicators are reaching a turning point, for example.

Both fund managers discuss and share their views and only make a unanimous assessment regarding the future development of the macro side, what they call the ‘big picture'.

The second important part, which defines how much risk the portfolio will take on such as equity exposure, is the capital market environment. For this the managers look at market and sector valuations as well as the change over time, profit growth expectations, short and long-term sentiment indicators (usually from Bloomberg and from Ned Davis Research) as well as the technical situation of the markets (equities, bonds, commodities, currencies and others).

These various indicators act as tactical asset allocation for the managers and are important for judging the market timing.

After evaluating the macroeconomic and capital-market environment, the managers will end up with a certain equity exposure bandwidth. This process is repeated on a daily basis.

After deciding the bandwidth of the equity exposure, the bottom-up process is used to pick stocks.

The fund managers split the main responsibilities for the fund's core markets. Ploder is responsible for Germany and the Scandinavian markets while Ferstl looks at Switzerland and the Central and East European countries. Other European markets are shared between them.

On a daily basis this means both fund managers will cover and analyse their markets, talk and visit companies in these markets, have conference calls with analysts covering companies from these markets and generally keep in touch with these specific areas.

At the end of the process, there may be an investment idea. At that point both fund managers need to agree on adding a certain position. Once the stock is in the portfolio, one of the fund managers closely monitors the position.

Stock ideas from other markets such as the UK, France and others are analysed by the fund manager responsible for the idea or who has spare capacity.

The strategy has an actual track record in Ucits format for over two years. However, the strategy was launched in 2004 by the same management team and has been managed in the same way since then. Fleming says this gives the Ucits product a considerably longer track record compared with its peers.

The fund's investors are institutional including insurance companies, asset management companies, funds of funds, private banks, wealth managers and family offices.

Fund facts
Full name of fund: FCM European Opportunities Fund
Name of portfolio managers: Reinhard Ploder and Guenter Ferst
Name of investment/management company: Fleming Family & Partners Capital Management
Contact information: Fleming Family & Partners Capital Management (+44 (0)20 7036 5881; FCM.Marketing@ffandp.com, www.fcmfunds.com)
Launch date: January 7, 2009
Assets under management: $62 million (at December 31, 2010)
Annualised return: 19.64% (at December 31, 2011)
Annualised volatility: 7.03% (at December 31, 2011)
Sharpe ratio: 2.7130
Strategy: European equity absolute return
Share classes: euro, sterling, US dollar, Swiss franc
Management fee: 1.5%
Performance fee: 15%
Minimum investment: $62,500 (or euro or sterling equivalent)
Lock-in: none
Redemption/liquidity terms: daily (daily gate of 10% NAV)