While the ECB’s new quantitative easing programme, totalling some €60bn per month, has been something of a game changer – at least as far as the markets are concerned – Greece continues to be the problem child. Any hiccups with the reforms and markets could very well be heading south.
There remains that nagging doubt that things may still get a lot worse before we get harmony within the eurozone, creating big decisions for investors who act on such uncertainty.
QE kick off
European indices rallied in March as QE kicked off, with the Euro Stoxx 50, Dax 30 and Cac 40 having all registered impressive gains so far in 2015. This was after relative underperformance in 2014 – another measure, the MSCI Europe ex UK index made a slight loss, compared to 10.6% from the MSCI AC World index in sterling terms.
It seems that fund managers are becoming much more positive on the region’s equities with several tailwinds, including a relative attractiveness from a valuation point of view, the aforementioned QE as well as the weaker currency and lower oil prices.
“From a company level Europe is looking strong – QE has made it extremely cheap to access debt, and we’ve seen record bond issuances over the past two months or so,” says Charles Younes, fund analyst at FE.
“These companies are full of cash but being able to borrow at such cheap levels has given them a real boost. Currency has also played a big part. The weaker euro – it is down versus the dollar by almost 20% over six months – has given a boost to companies that report in euros. Large caps have been among the biggest beneficiaries: they are reporting good earnings, have access to cheap debt and have the added benefit of reporting global earnings in euros.”
So which funds are likely to benefit most? For growth investors, Wellian Investment Solutions’ investment director Chris Mayo singles out Schroder European Opportunities.
“Managed by Steve Cordell, follows an investment approach based around the business cycle and identifies the companies that will benefit from it,” he says.
“The fund currently has its biggest country exposure to France, Germany and Switzerland, with its biggest sector positions in financials and healthcare.”
Hunting pricing power
Adrian Lowcock, head of investing at AXA Wealth, picks out Henderson European Selected Opportunities, run by John Bennett who he says invests primarily in large companies and looks for businesses which have pricing power, the ability to raise prices and not suffer a loss of demand.
“Bennett looks for themes and invests in change, anticipating inflection points in markets and taking advantage of these changes in sentiment,” he adds.
For more on European equities, and the funds you should be considering, see the April edition of Portfolio Adviser, out soon.
