Is there ever a good time to invest in Europe?
This article first appeared in on professionalparaplanner.co.uk on 16th July 2022 “When has Europe...
This year’s Eurovision Song Contest takes place this Saturday, 18 May, in Tel Aviv, with 26 acts competing for top spot.
Our hopeful entry, Michael Rice, wasn’t even born when the UK last won the contest: Katrina and the Waves in 1997. Indeed, in the past 22 years, we have only finished in the top ten on three occasions – finishing bottom as many times.
And according to Betfair, this year won’t bring about any nice surprises: the current* favourites are the Netherlands followed by Sweden, then Russia, with UK outsiders at 200-1.
So before we settle down to a few hours of ‘guilty-pleasure’ viewing, we asked four Elite Rated European equity managers which countries are among their top holdings…
Niall Gallagher, manager of GAM Star Continental European Equity, said: “The fund’s make-up is mainly based on individual stock picks, but there are a few over-riding themes. Firstly, we have a bias towards companies that are more exposed to some of the big global growth themes, such as the emergence of the emerging market middle class, so we favour luxury stocks.
“We also have companies exposed to technological disruption – either those that are doing the disrupting or that are likely to benefit from these big shifts – for example the shift toward electric cars and autonomous-driving.”
While Niall’s top country weightings are currently France (16.29%**) and Germany (16.12%**), he also has some exposure to areas of the European market that he believes are recovering quite well – Irish and Spanish house builders, for example.
Marcus Phayre-Mudge, manager of BMO European Real Estate Securities, commented: “I have an upbeat assessment of European property shares, but also acknowledge risks associated with the likes of Brexit, trade tensions and US dollar strength. Selectivity is crucial.
“Income has long been one of the key benefits of property and the difference between the income offered by property and comparative fixed income assets remains attractive. Critically, there’s scope for that income to grow with property dividend yields predicted to rise again in 2019 against a backdrop of rental growth.
“Of course, rental growth isn’t universal, but there are pockets where strong and improving tenant demand combine with a comparative lack of supply to push rents higher. Locations and property sectors boasting these characteristics include office space in Stockholm, Paris, Madrid and Barcelona, residential property in Germany and logistics space across all of Europe.”
John Bennett, manager of Janus Henderson European Focus, added: “Thus far, 2019 has seen European equities confound a pessimistic consensus [the sector is up almost 9%*** so far]. But investor outflows from the asset class continue apace and rarely can we recall so many investors seemingly underweight the region.
“Against the general bearishness, we take comfort from more real-time indicators of global economic health. Chinese growth in particular typically affects European growth with a lag of around three months. Spillovers have historically been strongest into Germany and most pronounced for industrial indicators such as orders and production. This pattern seems consistent with the 2016 experience when Chinese growth accelerated from late first quarter but European growth only picked up from the middle of the year.”
“Our business is about the rate of change. Often, the greatest gains are realised when things go from bad to less bad and toward stabilisation. As ever, our emphasis remains on individual stock selection.”
The fund’s top country weighting is Switzerland (17.6%**), followed by Germany (16.9%**) and Netherlands (12.1%**).
David Walton, manager of Marlborough European Multi-Cap, concluded: “There are certainly challenges at a macroeconomic level in Europe. A number of forecasters have revised downwards their predictions for economic growth in the Eurozone in 2019, with the European Central Bank (ECB), for example, reducing its forecast from 1.7% to 1.1%.
“Italy slipped into recession at the end of last year, although the ECB is forecasting it will return to modest growth of 0.6% this year, and Germany, often described as the powerhouse of Europe, is experiencing a slowdown in growth.
“But one of the key things about our fund though is that we look for companies that can grow their earnings without relying on the tailwind of a strong economic backdrop. One of the stocks we’ve added to the fund is Eckert and Ziegler, which is a German group that operates in a number of specialist areas, including supplying the isotopes for radioactive medicines used to treat cancer tumours.
“It’s a highly specialised area and, as the market for these radiopharmaceuticals grows, the company is well-positioned to benefit, so we think it has strong prospects, and the success of the business isn’t reliant on the German or European economies powering ahead.”
The fund has 17.9%** invested in companies listed in Sweden. The second largest country weighting is France (15.5%**), then Italy (12.2%**).
*Source: Betfair 4 pm, 15 May 2019
**Source: Fund fact sheet, 31 March 2019
***Source: FE Analytics, IA Europe ex UK sector average, total returns in sterling, 1 January to 14 May 2019