Is now the time to invest in a European fund?

23rd August 2013

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Positive news has eluded the beleaguered Eurozone for quite some time but recent positive numbers are hinting at a recovery writes Philip Scott. All of which beg the question – is now the time, to bag an investment bargain?

Following 18 months of receding economic growth, in the three months to the end of June, the Eurozone managed to pull itself out of recession, as the economy managed to grow by 0.3 per cent, marginally above analysts’ expectations.

Optimism has risen sharply in recent weeks as a sustainable recovery now appears a more realistic prospect after several years of austerity and weak or negative growth. Just recently the European Commission consumer confidence indicator had “improved markedly” in the 17-nation Eurozone area and it is forecasting that the economy of the whole 28-nation region, including the UK, could grow by 1.4 per cent in 2014.

European income stock tips

The messed up world of investing

But while certain economic data has improved recently the two questions that investors should ask are, firstly, does this represent a meaningful recovery that can endure or is it merely a case of things becoming less bad? Secondly, although there are signs of some economic improvement does it also mean there has been amelioration in the debt crisis?

Ted Scott, director of global strategy at F&C points out there have been false dawns before; for instance in 2011. He says: “The point needs to be reiterated that for the Eurozone to work successfully it requires the policy makers to necessary measures for a full political and fiscal union.

“There is huge political will to keep the 17 countries intact which analysts have consistently underestimated but in order to do so it has led to a ‘sticking plaster’ approach which buys time rather than implementing the necessary fundamental reforms. This includes not only a full banking union but some form of debt mutualisation that integrates the finances of the member countries.

“Unfortunately the political will to do this remains absent and therefore the muddle through scenario is likely to continue for the foreseeable future.”

The region’s economy was driven by strong quarterly growth in both Germany and France, up 0.7 per cent and 0.5 per cent respectively. The strongest quarterly growth was the 1.1 per cent in Portugal.

The fact that economic expansion beat forecasts could be interpreted as an indication that growth was establishing a certain traction but Douglas Roberts, senior international economist at Standard Life Investments believes that as welcome as the new figures are it is unlikely to herald a period of growth acceleration.

He says: “Notwithstanding the good news, the region’s economic Commissioner, Olli Rehn, tried to put things in perspective by saying that celebrations should be put on hold, given Europe’s jobs crisis and the wide disparity in economic performance between different countries in the Euro-zone. Almost as many countries remained in recession in the three months to June, as those that emerged.”

But while Europe’s economy has endured a prolonged period of economic hardship, funds which invest in the region have delivered respectable results. For example in the past year, the average European fund has achieved a return of 29 per cent to its investors, while typical UK fund has delivered 21 per cent. And over three years the respective returns are 40 per cent and 44 per cent.

Fund tips

In a recent interview with Mindful Money, Oliver Russ, manager of the Argonaut European Income fund, which aims to boost investor income by investing in stocks across the continent but not in the UK asserted that while Europe’s economy is enduring a severely strained period, there are many firms listed across the region which are actually in rude health.

For intrepid investors looking to make an investment, Mark Dampier, head of research at fund broker Hargreaves Lansdown and Martin Bamford, managing director at financial adviser Informed Choice tip Jupiter European, managed by Alex Darwall, as a fund to back. Over the past year five years, it is up a considerable 87 per cent, while the average European fund is up 34 per cent over the same period. Bamford says: “This is the main European fund we recommend. The manager is quite selective about where he invests, and has more exposure to nations which have been doing better, such as Germany and France while he has avoided the likes of Portugal and Greece.”

Elsewhere Dampier also backs the Henderson European Special Situations fund. Launched in 2009 and managed by Richard Pease, the fund has achieved a return of 55 per cent in the past three years, comfortably beating the European fund average of 40 per cent for the period. Fund broker The Share Centre includes the BlackRock European Dynamic fund, on its preferred list of portfolios. The fund which is managed by Alister Hibbert has about 55 per cent of its investments spread across France, Germany and Switzerland and over five years it is up 96 per cent. The Share Centre also rates Cazenove European, which again has a large chunk of its investments in the like of France and Germany. Over five years, it has achieved a return of 41 per cent.

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