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  • Three reasons to invest in Europe

    Dominic Rowles explains why he believes European markets are worthy of consideration for UK investors at present.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Europe has endured its fair share of bad news over the past few years, including political instability and the as-yet unresolved sovereign debt crisis. Political clouds continue to gather in the form of looming Brexit negotiations, the success of which could have profound implications for the UK and Europe.

    Investors could be forgiven for ignoring Europe altogether. Yet despite the doom and gloom, the European stock market delivered remarkable returns over the past five years, growing 105.9%* with dividends reinvested. Past performance is not a reliable indicator of future returns.

    Below I look at three reasons we believe investors should consider Europe at present. This article is not personal advice, so if you are at all unsure of the suitability of any investment for your circumstances please contact us for advice.

    The market looks good value

    If you want to buy a soft top car, you often pay a lower price if you wait until winter, as convertibles are less desirable when the weather is cold. The same principle applies when building your portfolio. Buying areas that are unloved by other investors when prices are depressed has historically proven to be a profitable long-term strategy, although there are no guarantees. Investments will fall as well as rise in value, so investors could make a loss.

    One of our favoured measures of valuation, the cyclically adjusted price/earnings (or ‘CAPE’) ratio, suggests European stocks still trade well below their long-term averages and, despite the good performance of the past few years, could in our view have further to go.

    Europe – valuations still well below long-term average

    Source: Datastream, HL, Dec 1982 – Jun 2017

    In our view, it is important to divorce concerns over the wider economy or politics from the prospects for companies. This view was recently reinforced when almost 64% of European companies reported earnings that beat analyst expectations in the first three months of 2017.

    Diversification

    Europe is made up of 50 nations, each with its own culture, political system, and economic strengths and weaknesses. We see the disparate nature of European economies as a distinct advantage for investors seeking geographical diversification.

    The companies that inhabit the region are also diverse and include global success-stories such as BNP Paribas, Christian Dior and Heineken, through to smaller companies with the potential to be the market leaders of tomorrow.

    Quality fund managers

    Europe is the hunting ground of many exceptional stock pickers with a long history of consistently identifying some of Europe’s most profitable investment opportunities. One of our favourites is Richard Pease, manager of the FP Crux European Special Situations Fund.

    Case Study: Richard Pease

    Richard Pease has built a 27-year career investing in European equities and his approach hasn’t changed throughout.

    He seeks companies that operate in niche areas with high barriers to entry from competition. These companies usually benefit from pricing power, meaning they can pass cost increases on to customers without demand for their products being significantly affected. The specialist nature of some of these businesses and their ability to generate overseas earnings means they have the potential to prosper in both good and bad times for the wider economy. He has the flexibility to invest across companies of all sizes – including higher risk smaller companies – but tends to focus on medium-sized companies.

    The fund has delivered growth of 159.7%* since launch in October 2009, compared with 98.8%* for the sector average, although past performance is not a guide to future returns. Our analysis shows the manager’s focus on resilient companies has helped to shelter investors’ capital from the worst of stock market falls, although it has marginally lagged a rapidly rising market.

    More information on the FP Crux European Special Situations Fund

    FP Crux European Special Situations Fund Key Investor Information Document

    Annual percentage growth
    June 12 -
    June 13
    June 13 -
    June 14
    June 14 -
    June 15
    June 15 -
    June 16
    June 16 -
    June 17
    FP CRUX European Special Situations 34.5 9.3 7.4 13.4 27.5
    IA Europe (Excluding UK) 31.2 13.8 4.1 4.7 29.2

    Past performance is not a guide to the future. Source: *Lipper IM to 30/06/2017

    A multi-manager approach

    In our view there is no shortage of quality fund managers able to identify some of Europe’s most profitable investments, regardless of the economic backdrop. With an array of exceptional managers available, the decision of which to choose can prove difficult for many. Two years ago we decided to take the load off investors’ minds by combining what we believe to be some of the finest stock pickers in the sector into a single portfolio: the HL Multi-Manager European Fund.

    Run by our sister company HL Fund Managers Ltd, the fund comprises a select list of talented managers with different, yet complimentary skillsets, investing across the continent in companies of all sizes – including higher risk smaller companies. Managers Lee Gardhouse and Roger Clark monitor performance closely, rebalancing the portfolio and making changes on investors’ behalf when they feel it’s necessary. We believe the work involved and the results it generates more than justifies the extra costs associated with a multi-manager approach.

    We believe the fund could provide core exposure to European markets, or could be used to provide further diversification to a global equity portfolio.

    More information on the HL Multi-Manager European Fund

    HL Multi-Manager European Fund Key Features

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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