Bet on Europe's resilience

European economies are looking strong, and the factors underpinning 2009's upswing in the continent's equity markets, manifold. First, many of the major economies in Europe (excluding of course Ireland and Spain) did not have the massive property bubble suffered by the rest of the Western world. Add to this European consumption which has also been more resilient than in other parts of the world and monetary policy which despite being criticised for not being aggressive enough, is having a positive impact. Eastern Europe is also no longer expected to go into meltdown, while exports - the big swing factor here - are picking up in spite of a strong euro with sales to emerging markets now accounting for almost a quarter of total European revenues.

Investors looking to benefit from the significant stock selection opportunities in European equities should look at the Invesco Perpetual European Equity Fund which aims to achieve capital growth by investing primarily in companies in continental Europe, although it may include other European related investments.

Morningstar analysts brand the fund as 'one of the best', recently awarding it with an 'Elite' rating reserved for Morningstar analysts' highest conviction picks. To earn this rating a fund must be significantly better than its peers in most key respects.

"Investors in Invesco Perpetual European Equity have access to first class management in Jeff Taylor. With over two decades' experience under his belt, a strong, proven process and a vast array of analytical resources at his disposal, we have strong conviction he will continue to drive the fund ahead of its competitors through time," says Muna Abu-Habsa, fund analyst at Morningstar.

Mr Taylor, who heads up the European equities team at Invesco Perpetual, selects stocks using a combination of bottom-up and top-down criteria, favouring companies that trade at a discount to book value. Preserving capital is key to his process, and this has been mirrored in the fund's performance.

Invesco Perpetual European Equity returned 4.6 per cent on average each year, compared with 2.6 per cent for the fund's peers. In 2008, the fund fell 18.3 per cent as markets went into meltdown but still managed to lose around 5.2 per cent less than its peers.

While Mr Taylor's tendency to deviate from the index and dip down into mid-caps (exposure to mid-caps was 32 per cent at the end of August 2009) might be deemed a source of risk given the higher volatility of this sector, he has managed to protect investors' capital in down markets.

Morningstar analysts report that while the fund's total expense ratio (TER) of 1.70 per cent slightly exceeds the Morningstar Europe ex UK Large-Cap Equity category, the 'no-trail' shares at 1.20 per cent offer a much better deal.

Like other fund managers under the Invesco Perpetual banner, Mr Taylor has stuck to a defensive positioning in 2009 choosing to steer clear of cyclicals. Instead he has preferred defensives, particularly within telecoms and pharma. As cyclicals took off, this positioning has been a drag on returns relative to funds which emphasised higher risk. When the market is driven by momentum, the fund is unlikely to participate but Morningstar analysts laud Mr Taylor for managing to add value while protecting investors' money when markets turned ugly.

Key fund data:

Source: Invesco Perpetual, www.ft.com/funds, Morningstar*

Notes: Performance figures as at 30 October 2009

Top ten holdings as of 1 October 2009

Asset allocation