That’s not to say European equities are on a stellar run – always a high-beta variation on the macro environment, this year has so far proved a difficult one for the major indices. Though this poor performance in itself could be seen as a time to get involved.
With the eurozone crisis, Greek bail outs and fears of the collapse of the euro seemingly in the past (for now), it is no great surprise that European equities have proved popular, especially against the arguably expensive US market.
According to the Investment Association, European funds actually represented the best-selling equity region in 2015 with record net retail sales of £4.5bn, up from £221m in 2014. And there is evidence that this trend is continuing this year.
Standard Life Investments’ MyFolio team increased its overweight to European equities at the end of January this year, at the expense of UK equities where it is now underweight.
“Europe is a preferred market because we expect consumer spending to drive earnings growth here, while the central bank remains supportive of the market,” says head of fund of funds, Bambos Hambi.
“We think the recent poor relative performance here is an opportunity to overweight Europe against the UK. For the UK itself, we are not too downbeat although we are aware that the referendum on EU membership will continue to foster uncertainty.
“With greater uncertainty and a less supportive central bank we believe that absent any large commodity rally that the UK should underperform Europe.”
Europe versus the UK is a tempting narrative to push centre stage in the months ahead. Still, rather than labouring over the Brexit vote it’s worth focusing more on Europe’s potential points of attraction, particularly with the ECB seemingly ready and waiting to do more to support markets.
“As we stand today, the Shiller PE is standing more like 14 times in Europe with the recent selloff, and that is still showing a very significant potential for returns moving forward, which we believe is the standout opportunity in Europe today,” says Stephanie Butcher, manager of the Invesco Perpetual European Equities Fund.
Butcher adds that valuation today very much favours value, and so she has been investing in financials, oil and gas, telco, parts of the periphery, and is underweight consumer staples.
She adds: “Our view is European growth and global macro environment is intact. Earnings are slowly improving, and we think there’s a lot of opportunity in many sectors with standout valuations, but positioning is absolutely crucial, and we believe that this is not a time to be herding with the crowd.”
More commentators give their views on European equities in the latest edition of Portfolio Adviser, out Monday.
