Exploit Europe's value with Henderson European Focus

"The region continues to look attractive relative to other developed markets and we believe that the impact of a weak currency on the competitiveness of European companies has not been fully appreciated," says Adrian Lowcock, head of investing at AXA Wealth.

WhiteChurch Securities also remains overweight in Europe and among developed equities, and favours the region over the US. "Even though the sell-off has been marked, the European Central Bank quantitative easing (QE) measures remain in place, providing support for investors, while a weak euro will provide impetus for exports," comments its investment team. "Given where we are in the earnings and economic cycle, the potential for positive profits revisions in Europe is still evident and appears much greater than in the US at this point in the cycle."

A good way to tap into European companies that could re-rate is Henderson European Focus Fund (GB00B54J0L85), a new addition to our IC Top 100 Funds and which wealth manager Tilney Bestinvest counts among its premier selection of funds. Henderson European Focus' manager, John Bennett, screens for attractively valued stocks, and then looks for a catalyst that will drive growth and a re-rating of the stock through careful business analysis. He then holds them for long periods which allows them to appreciate.

He favours companies with strong balance sheets and consistent earnings growth which are trading on attractive valuations.

The fund's largest sector exposure is healthcare because Mr Bennett believes the strong cash flow generation from many pharmaceutical companies makes them attractive investments. He has also been adding banking stocks aiming to benefit from an upturn in the European economy, which has been further boosted by QE.

Mr Bennett puts together the fund's portfolio considering both macroeconomic factors and companies' individual merits. He has 28 years experience of investing in European equities.

He also manages the Henderson European Focus Trust (HEFT), but this is trading at a 3.9 per cent premium compared with an average 12-month premium of 0.8 per cent, so we think the open-ended fund is a better option.

The fund has a strong long-term performance record: it is among the top 10 performing Investment Association (IA) Europe ex UK sector funds over five years, and is in the top quartile over three. It also beats FTSE World Europe ex UK Index over one, three and five years.

The fund is relatively small with assets under management of £460m, which allows it to move in and out of shares more efficiently than larger funds, and have the option of investing in mid and small-caps, although it focuses on larger companies.

However, despite the economic problems there are still many good quality companies listed in Europe: which is what the fund invests in. And despite slipping into the second quartile over one year, it is well ahead of its sector average and the broad index - with a positive return.

So if you want to take advantage of attractive valuations via a manager and fund that have proved their ability, and you have a long-term time horizon, then Henderson European Focus remains a good option. Buy.

Source: Morningstar, *Henderson

Performance vs key indices

Source: Morningstar as at 11 September 2015

Top 10 holdings as at 31 August 2015 (%)

Sector breakdown (%)

Geographic breakdown (%)