According to the IA, European equity funds were the best-selling in October, with net retail sales of £532m, this is against a monthly average of £227m for the previous 12 months and a £347m outflow for the comparable period in 2014.
Breaking this up further, the IA’s Europe ex-UK sector (£379m) saw the second most net retail sales during the month, while the European Smaller Companies Sector came fourth in the rankings, raking in £148m. This is a significant jump from the £20m in inflows it recorded in the previous month.
So what’s going on?
Part of the reason could be the expectation of further Quantitative Easing when the European Central Bank meets later this week, but more broadly, judging from a number of commentators, there is a growing expectation that 2016 is the year that earnings growth finally starts to come through.
Oliver Russ, manager of the Argonaut European Income Fund, explained that while valuations have risen in Europe in recent years earnings have not gone anywhere really for the past four of five years.
“As macro risks have receded, so investors have been prepared to pay much more for the same earnings, but there is no further to go on that curve. From here if we want to see more market progress then we do need to see the growth coming through.”
And, he added, that is increasingly starting to happen. Generally speaking, he pointed out, consensus earnings estimates start the year at around 10% higher than the previous year but, as the year drags on, these are revised downwards until they end the year flat or even negative.
“In the eurozone this year, we are on course for double digit earnings growth at a consensus level. That is a major change in trend that we haven’t seen for years,” he told Portfolio Adviser.
