Five funds to ride Europe’s quantitative easing rally

9th March 2015


With the European Central Bank kicking off its full-blown monetary stimulus this week, Tom Stevenson at Fidelity Personal Investing look at ways to invest in Europe…

Getting a consensus around so-called quantitative easing (QE) has been a long struggle for ECB head Mario Draghi but he has got there in the end.

With bond yields already on the floor in Europe – even in the far from blue-chip periphery – no-one really knows what the impact will be on the economy. But history suggests that what QE is very good for is financial asset prices.

Investors have already started to pick up on this, with flows into the region strong since the beginning of the year – more than in any previous quarter, according to Markit which measures fund flows. They are betting that a weak euro, lower oil price and easier credit will finally kick-start the Eurozone economy.

For anyone thinking of making an investment in Europe, we have put together a list of funds for consideration…

Jupiter’s European Special Situations

Cedric de Fonclare, who manages Jupiter’s European Special Situations Fund points to the abundance of choice in Europe with a wide range of global leaders with international exposure. He looks for companies benefiting from mega-trends like ageing populations and energy efficiency. He has a focus on profitability and quality, which he believes leads to higher returns and lower volatility. Above all he looks for good valuations, where the market is too cautious about prospects.

Threadneedle European Select 

Threadneedle’s  David Dudding is a bottom-up stock-picker who also thinks that Europe is a good place to invest whatever the overall economic backdrop. The Threadneedle European Select Fund he runs is highly concentrated, a real best-ideas fund which looks for best of breed companies with pricing power. Around half the portfolio is accounted for by the top 10 holdings, which Dudding believes actually reduces risk because it means he knows more about the principal investments in the portfolio.

BlackRock’s Continental European 

Vincent Devlin runs BlackRock’s Continental European Fund. He takes into consideration the macro-economic backdrop and then applies it to his stock-picking. That process has five main components: talking to management about their strategy and ability to execute their plan; assessing the company’s capital allocation; focusing on cashflow conversion and then valuations and growth potential.

Invesco Perpetual European Equity Income 

In a low interest-rate environment, equity income is attractive in Europe as much as in the UK. Stephanie Butcher, who manages the Invesco Perpetual European Equity Income Fund, believes European companies are focusing more than ever on dividends. Cash balances are strong and these typically get used when confidence rises. She sees the potential for dividend growth with many European companies’ shares actually yielding more than their bonds. She prefers domestically-focused companies and has found good value in the periphery, particularly Spain.

Fidelity Index Europe ex UK Fund

Finally, if you think that the market will be driven largely by ECB liquidity lifting all boats, then you may prefer to simply track the European market at a low cost. The Fidelity Index Europe ex UK Fund is designed to mirror the performance of the MSCI Europe ex UK index and has an ongoing charge of 0.1%.

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