There are signs that domestic demand is starting to improve and bank lending to firms and households has started to rise too. European stockmarkets fell in October but have recovered this month and look likely to recover further.A European fund which I recommended about a year ago is Baring Europe select which is still the top performer over the past year when it rose by over 30 per cent. Fund manager Nicholas Williams has done an excellent job and his fund in the European smaller companies sector has outperformed all bigger company European funds as well. Smaller companies in Europe are under-researched and many are showing much higher growth rates and rises in profits than bigger companies. There is also a great deal of corporate activity, especially in takeover bids. Around 90 per cent of the recent takeovers have been for smaller companies. Williams invests in a wide variety of sectors, mostly financials, business providers, technology, industrial goods, retail providers and consumer goods which all account for over 13 per cent each of the total portfolio. Some of the bigger holdings include SKF AB, Bank of Piraeus, Metzo, Fugro, Hexagon and Enagas. Most of the major invest-ment management groups are now optimistic about the future performance of European stockmarkets and I agree with them. This trust is my first choice for the European section of growth portfolios. Others I like include Artemis European growth, Fidelity European, Framlington European and Thread-needle European smaller companies.