Capture Europe’s recovery potential with BlackRock

IC TIP RATING

Tip style: GROWTH

Risk rating: HIGH

Timescale: LONG TERM

If you see merit in these arguments and want to get some exposure to Europe then a good option is BlackRock European Dynamic Fund (GB0000495209). This fund has made good long-term returns beating the FTSE World Europe ex UK Total Return Index over three and five years, and the Investment Management Association (IMA) Europe ex UK sector average over the same periods. This puts it among the top quartile of its sector over three and five years.

The fund's manager, Alistair Hibbert, selects shares according to their individual merits but also places a strong emphasis on wider macro-economic themes, and looks to adapt to changing market conditions.

"It is probable that the manager will be required to steer the fund through a market environment highly influenced by European Central Bank and individual governments' policy decisions over the medium term," says Mick Gilligan, head of research at Killik & Co. "The combination of top-down macro and the fundamental stock picking expertise of the team will continue to guide the portfolio well through what is expected to be a turbulent and policy driven market environment over the coming years. BlackRock European Dynamic provides exposure to a well resourced team with a strong and consistent track record of producing outperformance from European equities."

The fund targets companies with long-term structural growth characteristics or recovery opportunities where there is profitability improvement from restructuring efforts or operational changes. Its portfolio has significant exposure to financials - around 22 per cent of assets - and it focuses on financial companies that are benefiting from the current low cost of funding.

Mr Gilligan also points out that the fund's average long-term earnings growth estimate is considerably stronger than the broader market at around 12 per cent against less than 9 per cent.

The fund's retail share class has an ongoing charge of 1.68 per cent but if you buy it from a fund platform this will be much lower, for example, on Alliance Trust Savings you can buy a different share class with an ongoing charge of 0.92 per cent. But you will have to pay platform fees on top of this.

Risks in Europe remain with some concerned that current low levels of inflation could turn into deflation and a potential triple-dip recession. And BlackRock European Dynamic has not performed as strongly over one year.

But Mr Gilligan says: "This is not a major concern - there has been some mild underperformance this year which can be largely attributed to an overweight financials position [until recently] and some underperforming picks within that sector during a period when European financials have been weak. And we think that European financials could surprise positively.

"The manager is more mindful of the macro situation than most and this is important when there are likely to be many macro influences in Europe over the next few years."

So if you want exposure to potential improvement in European equities and a fund that has managed to make good returns despite problems in the areas it invests in, BlackRock European Dynamic is worth consideration. BUY.

Source: Morningstar

Source: Morningstar as at 11 December 2014

Top 10 holdings as at 30 November 2014 (%)

Geographic breakdown