Share
Continental drift
Paul Farrow Farrow’s View
Europe does not appear to be at the top of our agenda today. There had been much trumpeting of Tony Blair becoming the first president of Europe but when the dust settled it was a case of Herman who? It was a similar reaction when we learned that Britain’s European commissioner, Lady Ashton, had been appointed Europe’s high representative for foreign affairs.
It never used to be that way. The subject of the euro and the EU were never far from the headlines. In the City, asset managers drooled at the thoughts of conquering Europe - whether with their own organisation setting up on the Continent or via funds investing in the region. There were even a couple of pan-European funds on offer to whet the appetite.
But our love for Europe seems to have all but petered out. Today, all talk among fund managers is of gold, absolute return, commodities and emerging markets. I cannot recall the last time that a fund manager wanted to talk to me about its European offering.
It is a far cry from when I worked at Money Marketing 10 years ago. Back then, investors could not get enough of the Europe ex UK sector.
Rory Powe’s Invesco Perpetual European fund was one that really caught the imagination. The fund size swelled from £250m in 1998 to £3.3bn at its peak in 2000 as investors rushed to buy the fund.
The fund’s success was driven by Powe’s ability to select medium and smaller-sized firms, which powered ahead and delivered superior returns. Many of these were tech-related stocks. But Powe’s judgment was not as shrewd as he thought and the fund’s value plunged when the dotcom bubble burst.
There was another reason why demand for Europe dwindled in the new millennium. The new Isa rules allowed funds from across the globe, whereas previously Pep investors were generally restricted to Europe and the UK.
All of a sudden, investors could invest tax-efficiently in emerging markets and other specialist funds. And, as we all believe the grass is always greener elsewhere, so European funds have been overlooked for much of the decade. But have investors made a mistake shunning European funds?
The number-crunchers from the Investment Management Association popped by the other week to show me investor buying habits of the past decade. It made for interesting reading, proving that through-out much of the decade we got out timing hopelessly wrong.
One bar chart showed how we are prone to press the panic button when the market dips. Fund withdrawals were at their height when Northern Rock and Lehman Brothers collapsed.
The charts that the IMA showed me also reveal that for much of the decade, Europe has outper-formed other regions. Since 2003, the IMA Europe excluding UK sector is up by 112.3 per cent compared with the UK all companies sector return of 71 per cent and North America, which is up by just 30 per cent.
Yet, as the IMA points out, despite superior market performance combined with favourable yields and valuations, Europe ex UK funds have been firmly out of investor favour for some years.
We all know how people got their timing hopelessly wrong during the technology phenomenon and the commercial property boom. I wonder if we should also add European funds to the list of where investors missed a trick, too?
Paul Farrow is digital personal finance editor at the Telegraph Media Group
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
