Six years on: Draghi keeps his promise but which funds have rewarded?

26 July 2018 marks six years since Mario Draghi, president of the European Central Bank (ECB), made a promise to “do whatever it takes”. In the midst of the European sovereign debt crisis, he made a pact to preserve the euro and thereby keep the eurozone intact.

Investors who trusted him to be true to his word have been rewarded: the MSCI Europe ex UK is up 111.19%* since the speech, compared with returns of just 79.64%* from the FTSE All Share.

Draghi is now ‘undoing’ it and has started to taper his bond-buying programme: the current €30bn of assets bought each month will halve to €15bn in September and end completely by December.

So what does the future hold? Darius McDermott, managing director of Chelsea looks at the pros and cons:

Three reasons to be optimistic

  1. The economy is healthy: From an economic viewpoint the outlook for the economy as a whole is still looking healthy: not quite as good as this time last year, but certainly still attractive.
  2. Companies are in better shape: The upcoming quarter-two results season will be crucial, but the hope is that earnings will remain strong and above expectations. Analysts’ focus will be on to capital expenditure plans as well as the earnings outlook to best gauge confidence levels.
  3. Valuations are still attractive: European equities look better value compared with other developed equity markets and their own bond market.

 

Three reasons to be cautious

  1. Political risks remain: As we saw with the inconclusive Italian elections earlier this year, there are still plenty of political risks.
  2. Trump’s tariff: Donald Trump is set to meet with European commission President Jean-Claude Juncker this week as the two look to find a solution to escalating trade war tensions. Europe’s sensitivity to higher U.S. tariffs is second only to Asia’s, with the auto sector particularly in the firing line.
  3. Draghi’s successor: Draghi’s term comes to an end next year and the leading contender for his successor is known to have disagreed with some of Draghi’s policies. We could see more market uncertainty as the swap-over approaches.

 

Six of the best: how Elite Rated funds have performed

The best performing Elite Rated European equity fund over the six-year period is T. Rowe Price European Smaller Companies Equity, which returned 205.58%*. The fund is actually pan-European and invests around 30% in the UK. It is currently overweight in the technology, consumer discretionary and healthcare sectors.

*Source: FE Analytics, total returns in sterling, 26 July 2012 to 18 July 2018

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.