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Euro stars

With most of the European economies improving, European shares should also improve, particularly smaller company shares where there is a large amount of takeover and merger activity and a lot of undervalued niche firms.

Smaller company funds have outperformed their larger company counterparts in the European sector by over 100 percentage points over five years as well as over one, two, three and 10 years at March 1, 2007.

One of the smaller company teams is at Barings. The Baring Europe select trust is headed by Nicholas Williams who was formerly highly successful managing the Singer & Friedlander European trust.

There are over 1,500 companies to choose from, many of which are under-researched by banks and investment analysts. Out of these, the Barings team researches around 500 companies.

Factors for selection include earnings growth prospects better than most estimates, undervaluation of fundamentals, peer group comparisons and the likelihood of re-rating. Stocks are sold if they reach their valuation target or if the profits outlook for that particular company changes.

The Barings fund is very overweight in Scandinavia at around 22 per cent of the total portfolio assets, including 8 per cent in Finland. These holdings include sporting goods manufacturer Amer, cargo handling and equipment company Cargotec and the broadband services provider Elisa. The team also invest in Irish, Greek and Spanish stocks.

The biggest holdings include Fugro, which is a Dutch company providing geotechnical consulting services to the oil, gas and mining industries, Swedish technology and engineering company Hexagon, as well as two banks, Bank of Piraeus and Banco Pop di Mila.

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