European funds have been flying in the last six months and it is helping
the likes of Invesco and Gartmore to boost sales in the run-up to the end
of the tax year.
The Invesco European growth fund has swelled to more than £3bn from £250m
in the last two years and is the main reason why the company is in third
place in the Isa race this year.
Three months ago, fund managers predic ted in Money Marketing that Europe
could steal first prize and its mark ets could well be the winner this
year, believing that the economic environment and consolidation activity
will boost its equity markets.
And it is a case of so far so good.
Many European funds have soared by more than 40 per cent in the last three
months. An outlay of £1,000 in Dresdner European smaller companies and
Invesco European growth would now be worth £1,777 and £1,440 respectively.
But IFAs have heard all the hype before.
At the start of last year, industry experts predicted success for European
markets, yet investors who heeded their advice were left feeling
It was one of the poorer-performing markets last year as attention turned
to Japan, technology and smaller company funds.
Many European funds that were among the leading funds in 1998, such as
Invesco GT European growth and Baring European, suffered.
An outlay of £1,000 in the average European unit trust in 1998 would have
returned £1,213 compared with £1,127 last year.
But the consensus is that Europe will be one of the top- performing
markets this year and its flying start can be sustained over the longer
European markets are expected to be driven by further merger and
acquisition activity. The Mannesmann/Vodafone deal marked the first
successful hostile bid for a German company from the outside and analysts
believe it could open the door for similar deals across Europe.
Private investors are catching the equity investment bug by dabbling in
the markets. Private equity inflows are at record levels, having soared by
£21bn in January, a far cry from the paltry £3.5bn taken at the same time a
HSBC Asset Management senior fund manager Chris Rice says: “Investor
attitude is shifting. European investors traditionally invested in bonds
and cash but they are now looking at equities. It is giv ing great
liquidity support to the market.”
But Europe has something else in its armoury which could set it apart from
other global markets in the com ing years.
Its mobile phone technology could see it overtake the US and Japan as the
leaders in global technology during the next decade.
The 1980s technology boom was dominated by Japan with video recorders and
Walkmans before the US took over in the 1990s with the likes of Microsoft
But analysts predict mobile phone sales will outstrip personal computer
sales by four to one, with it becom ing the main source of internet access
thanks to its mobility and cost.
Rice says: “Nokia and Ericsson both account for more than half of the
global mar ket for both handset and infrastructure. The mobile phone is set
to surpass the PC in its dominance.”
Finland-based Nokia is the world leader in mobile handsets. At the end of
last year, there were about 500 million mobile phone subscribers worldwide
and Nokia expects the number of subscribers to grow to more than one
billion by 2002.
Rory Powe, who runs Invesco's European growth fund, says: “In Finland,
mobile telephone users are now operat ing car washes and vending machines
by using their handsets as rem ote controls. Some analysts believe that
between 30 per cent and 50 per cent of all e-commerce transactions
worldwide will be carried out on mobile devices by as early as 2004.”
Powe's fund is the number-one performer over the last five years, having
turned a £1,000 investment into £6,335.
In the last few mon ths, it has benefited from playing the technology,
telecom and media (TTM) card, which accounts for some 75 per cent of its
But there are concerns among analysts that Invesco's fund may become the
victim of its own success. They believe that Powe will find it inc
reasingly tougher to deliver the numbers it has in the past.
Hargreaves Lansdown head of research Mark Dampier says: “You do not bec
ome a bad fund manager overnight but clearly it becomes more difficult to
manage because you do not have the flexibility with a fund that size to
benefit from the smaller stocks.”
Europe, like most global markets, will be driven by the TTM stocks over
the next few years.
Fund managers expect the recent short-term bounce of the old-economy
stocks such as retailers to be short-lived and the technology story will be
back on track.
Gartmore fund manager Guillaume Rambourg says:
“It will be a better perfor mer than the US. There is more room to go in
Europe in terms of merger and acquisition activity. The US is running out
of steam and we could see assets reallocated into Europe.”