AFI panellists remain upbeat on the outlook for European funds despite the extreme volatility of the underlying markets. Sovereign debt problems in Greece, Ireland and Portugal do not seem to have fazed advisers.
Chelsea Financial Services managing director Darius McDermott says he is confident that European equities will continue to perform strongly because of their low valuations and promising growth potential. He says: “The fact that Europe has some very good companies which are producing strong growth means that this performance will likely continue. Europe is also very cheap at the moment. Choosing fund managers capable of finding good value is is key to enjoying this strong performance.”
Chelsea Financial uses the Schroder European alpha plus fund, managed by Leon Howard-Spink, for European exposure because the firm likes its “consistent track record”.
The fund is invested in equities throughout European countries, with France, Germany, the Netherlands and Switzerland making up the four biggest geographical holdings. It topped the table of the best-performing AFI balanced portfolio funds over three months to April 20 followed by Jupiter European income in second and the Cazenove European fund in third.
Although remaining volatile, the IMA Europe excluding UK sector has climbed since the trough of March 2009 which coincided with the Greek bailout. Fears over Ireland’s economy contributed to further volatility during late 2010 and another dip came in March 2011 when Portugal asked for a bailout as well. Any further sovereign debt problems will likely set back investor confidence in a similar way.
The latest monthly survey of global fund managers from Bank of America Merrill Lynch revealed that eurozone weightings fell between March, when there was a net 8 per cent overweight position, and April, when the figure dropped to 5 per cent.
Rowan head of fund research Tim Cockerill says Europe is often overlooked by British investors who are quick to lose confidence in the market’s abilities. He says: “From a British perspective, we always think that European companies are not as well managed or are as stable as those in the UK. We do a lot of business with Europe, importing large amounts of cars and luxury goods, as do emerging markets. Europe should not be underestimated.
“These three month statistics should be taken with a pinch of salt but they do show encouraging signs. Over a calendar year, European equity funds do tend to perform well.
Cockerill points to Germany and the Netherlands as countries which enjoy both market strength and long-term economic growth potential. He says both of these house numerous firms which are robust, well managed and have a high level of emerging market exposure.