While the rest of the world is growing more enthusiastic about Europe, Tilney’s asset allocation team is of the opinion that the valuation argument has all but gone away.
Although the group hasn’t reduced its European equities overweight yet, which is currently double the MSCI’s weighting, Godding said they will be gradually doing so over the second half of the year.
“We still think the momentum in the region is very strong,” Godding, who joined the discretionary manager from Rubicon Fund Management in February, qualified.
“We don’t think Europe is expensive, we just aren’t as gung-ho as we used to be.”
However, Godding believes the earnings picture will be far rosier in Europe and the emerging markets than in the US, one of the reasons he has half of the MSCI’s exposure to the region.
The global economy’s strong headline momentum will begin to fade during the second half of the year, according to Godding, which many investors might find a bitter pill to swallow.
But, he argues that this is simply a trade-off between valuations expansion and earnings growth, which will be especially noticeable in the emerging economies and Europe.
“What you’ll see for the first time in many years is a strong underlying earnings trend, particularly in Europe and the emerging markets,” he stated.
