Europe is still in

Despite numerous political issues – the ever-present Brexit debates and most recently the problems in Italy and Spain – we believe that Europe still offers good investment opportunities for investors. In this article we take a closer look at the sector and cover four funds that are highly rated by our Central Investment Team.

Tom White Tom White
18 June 2018

Home to household names

Europe has lots of opportunities for active fund managers. It is home to some big brands such as Nestlé, L’Oréal, and Volkswagen to name but a few. But there are plenty of mid and small-cap companies to choose from too, such as Remy Cointreau, Hugo Boss and video game publisher Ubisoft, the creator of Assassin’s Creed. Small-caps have considerably outperformed larger companies over the last 5 years*, although of course it isn’t guaranteed to always be this way.

Good source of income?

The Eurozone crisis has given the continent a great deal of bad press, which has understandably put some people off investing. However, the European economy has been quietly recovering for several years now. And many European companies offer global exposure, meaning they can carry on growing regardless of domestic conditions. The European stock market currently offers a yield of 3.2% which, even though behind the UK, is still attractive*. This makes it a popular choice for income investors.

Four funds for thought

We have identified a number of fund managers that we believe are able to navigate the political issues and scour the thousands of available companies to find those that can deliver over the long term. Here are four of our top picks:

Jupiter European

Fund manager Alexander Darwall believes that economic data predictions can’t be completely accurate. He counters this by focusing on high-quality companies and holding them for the long term. With only 35 stocks in the portfolio, you could say he is scrupulous in his pickings.

Despite the small number of holdings this is considered a defensive portfolio since Darwall looks for companies that can deliver growth, regardless of the economic backdrop. For example, one of his main holdings is diabetes drug manufacturer Novo Nordisk. Sadly 1 in 11 of the worldwide adult population suffers from diabetes and the number is expected to rise**, meaning there is a constant demand for them.

There is a higher ongoing charges figure which includes a 0.25% registration fee, but the fund has rewarded investors by consistently outperforming its benchmark over last 10 years.

FP CRUX European Special Situations

Richard Pease, fund manager, formerly worked at Janus Henderson but left to form his own boutique firm, Crux. Pease brought this fund with him, which is unusual for a manager, but it does prove he has an incentive to make the fund and the firm succeed.

The fund is a diverse, multi-cap portfolio with around 60 holdings. Pease favours those that can maintain high returns over the long term and do well in any economic climate. He has cleverly invested in Kion, a forklift company, with the expectation that the ecommerce industry will continue to grow and forklifts will be required in warehouses.

BlackRock Continental European Income

This could be a good option for people investing for income with a current yield of 4%. Fund manager Andreas Zoellinger takes a pragmatic approach, constantly looking for growth and value opportunities. The portfolio can be considered defensive and he invests in stocks offering a high income as well as those that are expected to grow their dividends.

Unilever, one of the biggest consumer goods companies in the world, is one of the key holdings in the fund, as well as Zurich Insurance and British American Tobacco.

Threadneedle European Select

Fund managers Dave Dudding and Mark Nichols have a balanced and pragmatic style to investing which has led to a concentrated portfolio bearing only 40 stocks. Their mantra is ‘get rich slowly’ and though this might sound less exciting, it offers a degree of protection from falling markets and low volatility.

The focus is mainly large-cap exposure with holdings in well-known companies such as brewing giant AB InBev and sports champion Adidas – you might see them around at the FIFA World Cup! Although European large-caps have not performed as well as smaller companies recently, there has still been good outperformance historically.

Invest in European funds in our ISA

If this article has made you more enthusiastic about the idea of investing in Europe, why not try our ISA?

  • There are no set-up fees and service fees of 0.4% or less a year. Your money works hard for you and no one else
  • You get access to a wide range of investments, including all of those mentioned above
  • You can receive our free research, including the Our Top-rated Funds and Our Top ISA Investment Ideas guides

 

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Important information

*MSCI Europe, as at June 2018.

**Diabetes UK, 2018

The value of an investment may go down as well as up and you may get back less than you originally invested.

Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest.  You should make yourself aware of these specific risks prior to investing.

Past performance and current yield figures provided should not be considered a reliable indicator of future performance.

This article does not constitute personal advice.  If you are in doubt as to the suitability of an investment please contact a financial adviser.