HSBC European Growth fund at top of performance tables

The £271m HSBC European Growth fund has marked three years under the management of Nicholas Dowell by achieving top quartile performance over key time periods.

Dowell - who joined HSBC in 1994 - was appointed manager of the European Growth fund in December 2007. In the following year, he introduced a new concentrated portfolio structure of 25 positions at 4% each.

This disciplined, high conviction process has led to strong returns. The fund is in the top quartile of the UK's IMA Europe (excluding UK) sector over key time periods including one and three years.

Dowell said: "It is clearly easier to identify 25 mis-priced stocks than it is to find, for example, 75. The fund's focus on a limited number of exposures provides sufficient diversity - indeed volatility has proven to be lower than the benchmark - but more importantly it provides a high hurdle for inclusion."

Being stock driven rather than macro based, Dowell's investment approach involves identifying stocks with a compelling combination of return on invested capital and attractive valuations. He categorises these opportunities as either "compounders" or "improvers."

Compounders are stocks with a clear sustainable competitive advantage that Dowell considers undervalued by the market. Examples include Novo Nordisk, a pharmaceutical company which consistently reinvests profits to grow the business.

Improvers are those companies in which Dowell believes a potential increase in financial returns are being underestimated by the market. An example is Ingencio, the handheld payment terminal business, which through acquisition and new product development, Dowell believes is likely to increase its returns.

The disciplined approach means once a position reaches 4.5% Dowell will take profits by reducing that exposure to 4%. Likewise, he will rebalance a position to 4% if it falls below the 3.5% threshold.

Although Europe is currently out of favour with many investors, Dowell said he continues to identify companies that exhibit the characteristics he seeks. Many of these companies have the opportunity to grow their businesses outside Europe.

Andy Clark, Managing Director, UK Wholesale, HSBC Global Asset Management, said the HSBC European Growth fund has come of age as the performance figures demonstrate, a new manager and a clear investment process is reaping rewards, and this is starting to capture the attention of intermediaries."