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Experts split over Europe equities

Multi-manager opinion on the outlook for European equities is divided after the markets four-year bull run.

Much has been made of the success of Continental stocks, with profitability and cashflow at record highs and dividend growth outstripping the rest of the developed world.

New Star fund of funds manager Mark Harris has moved underweight in the sector amid concerns that the European Central Bank will increase interest rates, hampering further growth.

He says that although the macro picture is generally positive, he is favouring funds that have looked to protect their returns on the downside in case the market falls and has stakes in Eclectica Continental Europe and Resolution Argonaut European alpha, which have both taken out put options to protect part of their portfolio in a downturn.

Gartmore is more optimistic, however, with fund of funds manager Marcus Brookes believing that the recent 6 per cent market correction that followed the shock sell-off in China and weak US economic data flow was overblown.

Brookes says Western European companies are increasingly outsourcing production to Eastern Europe, which is improving efficiency and should help to underpin earnings.

His holdings in Europe include Artemis European growth, which he says is run using a purely scientific methodology that aims to capture stocks with improv-ing earnings momentum.

He says New Star European growth, which has more of a growth bias and greater exposure to peripheral European markets, and Cazenove European, which adopts a pragmatic business-cycle focused style, complement this holding.

Brookes says: “We are very optimistic on Europe and view the current downturn as being overblown.”

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