It has been a bumper month for European news, with the announcement of a €1.1 trillion European Central Bank quantitative easing (QE) programme, followed by Greek anti-austerity party Syriza's victory in the polls. Both factors have amplified the appeal of European stocks and the hunt for income as European bond yields will continue to fall, according to analysts. Meanwhile, investors already appear to be flocking to safe haven precious metals, with inflows soaring following this news. ETF Securities research analyst Simona Gambarini says there has been a $435m inflow to long gold and oil ETFs.
The market reaction to the news was mixed, with the expectation of Syriza's win dampening some volatility. The euro initially fell to an 11-year low early on Monday, but later regained some lost ground when news of Syriza's win was confirmed. The European Stoxx 600 index closed at around 0.5 per cent higher after a day of fluctuations.
AXA Wealth head of investing Adrian Lowcock says investors should hold on to their Europe funds and look for opportunities to add more.
"Retail investors should wait and see what happens," he says. "But Europe is cheap and people are typically underweight in Europe in the UK, so there may be opportunities to buy on weakness while the negotiations between Greece and Europe develop." He recommends Schroder European Alpha Income (GB00B6S00Y77), managed by James Sym. "He is a market cycle investor and, as such, the cyclical stockpicking nature means the fund should be able to perform across the whole market cycle," says Mr Lowcock.
Threadneedle has already said it will increase its weighting in European equities by 25 basis points for multi-asset portfolios, funded from cash, while Jason Hollands, managing director at Tilney Bestinvest, is also bullish on European equities. He says: "When the dust has settled on the immediate market reaction, we think this should continue to provide a supportive backdrop for risk assets, notably European equities."
He recommends Threadneedle European Select (GB00B8BC5H23) as a solid core choice and Baring Europe Select (GB00B7NB1W76), which has a small-cap focus. "For sterling investors wanting to neutralise euro depreciation versus the pound, we like Artemis European Opps I Hedged Fund (GB00B6WFCS60)," he adds.
Laith Khalaf, senior analyst at Hargreaves Lansdown, also recommends Threadneedle European Select. "Manager David Dudding tends to spend little time attempting to forecast economic issues, instead preferring to concentrate on analysing and investing in what he believes to be high-quality companies trading at attractive valuations," he says.
Performance of recommended Europe funds
| 1-month total return (%) | 3-month total return (%) | 6-month total return (%) | 1-year total return (%) | 3-year cumulative total return (%) | 5-year cumulative total return (%) | |
|---|---|---|---|---|---|---|
| Threadneedle European Select | 4.65 | 12.84 | 9.75 | 11.53 | 56.61 | 95.04 |
| FTSE World Europe ex UK | 3.47 | 8.28 | 3.84 | 6.77 | 45.02 | 46.58 |
| Artemis Europe Opportunities I Hedged Acc | 1.39 | 9.09 | 4.91 | 10.76 | 64.03 | n/a |
| FTSE World Europe ex UK | 3.47 | 8.28 | 3.84 | 6.77 | 45.02 | 46.58 |
| Baring European Select | 2.01 | 11.4 | 5.87 | 2.93 | 51.46 | 62.18 |
| Euromoney Smaller Europe (Ex UK) | 2.58 | 6.57 | -2.27 | -0.53 | 46.01 | 42.59 |
Source: Trustnet as at 27 January 2015.
