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  • European stock market and funds review – a strong end to 2021?

    We look at how European stock markets, economies and Wealth Shortlist funds have fared over the past 12 months, and share our outlook for European stock markets.

    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.

    It’s been almost two years since the first Covid-19 case was reported in Wuhan, China. Since then, the pandemic has continued to impact economies around the world, and Europe is no exception.

    We saw GDP, a measure of growth in the economy, slump at the start of this year, which prompted further stimulus and support from governments and central banks.

    To help kickstart the economy, significant stimulus will be pumped into Europe over the next few years. This includes a bolstered EU budget, totalling €1.1 trillion, and a next generation fund of €750 billion, which will aid in recovery efforts and finance the European Green Deal.

    Economies started to recover throughout the year but there have been setbacks. Inflation is on the rise and certain industries are struggling with supply chain bottlenecks. More recently, countries across the continent are dealing with the new Omicron variant too.

    Although the symptoms from this variant are expected to be less severe, it’s led some countries to re-introduce restrictions. Naturally, this will delay recovery efforts and slow growth going into 2022, but these restrictions might not last as long as previous ones.

    Some economic data gives grounds for hope a recovery is underway, and European companies are in relatively good shape. There could be some interesting opportunities for investors to look out for.

    This article isn’t personal advice. If you're not sure if an investment is right for you, ask for financial advice. All investments fall as well as rise in value, so you could get back less than you invest.

    How have European stock markets reacted?

    Through a combination of easing restrictions, improved vaccination rates and the hope of economies opening, the European stock market recovered towards the end of 2020.

    Over the past year, the market climbed 15.75%. It hasn’t all been plain sailing though. European markets experienced pressure from rising Covid-19 cases, worries around an energy crisis and more recently, new restrictions.    

    Some countries have been more resilient than others. The Netherlands returned an impressive 35% over the past year. Disruptions in supply chains and shortages in certain electronic components meant the Dutch based semiconductor manufacturer ASML flourished. The Nordic markets weren’t far behind either. Norway and Sweden performed well, climbing 26.40% and 19.40%, respectively.

    Spain was the poorest performing market over this period. The country was hit hard following sudden electricity price spikes. Poor accessibility to international energy grids and a reliance on others for energy supplies, including natural gas from North Africa, meant Spain was impacted more than others.

    Germany struggled this year too, as tightening restrictions and supply chain bottlenecks hindered the economy. Inflation has also reached 6%, its highest in decades. The European Central Bank believes this is temporary however, and that inflation will drop to more normal levels once supply issues and restrictions ease.

    Performance of European markets

    Past performance isn’t a guide to future returns. Source: Lipper IM, to 30/11/2021.

    What about different investment styles and company sizes?

    European smaller companies outperformed larger companies over the past year. Smaller businesses can be under-researched, so could offer greater growth potential, but they usually carry more risk.

    Sectors linked closely to the health and state of the economy, like banks and industrials, did well in the first half of 2021. Looking at the second half of the year, technology and healthcare took the spotlight.

    European sector performance

    Past performance isn’t a guide to future returns. Source: Lipper IM, to 30/11/2021.

    With an effective rollout of vaccinations at the start of the year, some investors turned to companies that had gone overlooked and traded at lower valuations, known as ‘value’ stocks. This meant companies with the potential to grow in the future, ‘growth’ stocks, took a hit.

    Growth stocks have crept back into favour though, with sectors like technology and consumer goods benefitting from this.

    Inflation and the expectation of rising interest rates have picked up too though, which can dampen the prospects of growth companies. Times like these are a reminder of the importance of having a diversified portfolio.

    How have the European Wealth Shortlist funds performed this year?

    European Wealth Shortlist funds have delivered mixed performance over the past year. They have different approaches and objectives, so we don’t expect them to perform in the same way.

    Remember 12 months is a short time frame when looking at how an investment has done. Past performance isn’t a guide to the future. Investments should be held as part of a diversified portfolio for the long term – by long term we mean at least five years. All investments fall as well as rise in value, so you could get back less than you invest. For more details on each fund and its risks, please see the links to their factsheets and key investor information below.

    Threadneedle European Select Fund was the best performing Wealth Shortlist fund over the year. Boosted by the strength of the managers’ stock-picking ability and investments in industrials, financials, and consumer staples sectors, it returned 16.92%*.

    Semiconductor manufacturer ASML and chemical distributor IMCD were among the fund’s top performers. ASML benefited from the acceleration in digitisation and the demand for semiconductors. IMCD released a strong set of results and welcomed increased demand.

    Find out more about Threadneedle European Select Fund, including charges

    Threadneedle European Select Fund key investor information

    TM CRUX European Special Situations was a weaker performer over the last year, though it still grew 10.28%*. Investments in technology, financials, and the consumer discretionary sectors detracted from performance.

    The fund also invests in several undervalued companies with good prospects that haven’t yet been noticed by others. Some of these businesses have been out of favour with investors, putting pressure on performance, including German stock exchange operator Deutsche Boerse. Investments in industrials helped, including French network developer Spie, which had a strong year.

    Find out more about TM CRUX European Special Situations, including charges

    TM CRUX European Special Situations key investor information

    Annual percentage growth

    30/11/2016 To 30/11/2017 30/11/2017 To 30/11/2018 30/11/2018 To 30/11/2019 30/11/2019 To 30/11/2020 30/11/2020 To 30/11/2021
    Threadneedle European Select 24.26% -5.17% 18.56% 16.10% 16.92%
    FTSE World Europe ex UK 25.03% -4.55% 13.65% 7.32% 15.75%
    TM CRUX European Special Situations 24.57% -8.85% 11.77% 4.14% 10.28%
    IA Europe Excluding UK 23.61% -6.62% 12.16% 9.19% 14.94%

    Past performance isn’t a guide to future returns. Source: *Lipper IM to 30/11/2021.

    How have other European funds fared?

    Over the last 12 months, funds with a focus on smaller companies outperformed funds that invest in larger companies. IFSL Marlborough European Special Situations and ASI European Smaller Companies were at the top of the list, returning 38.23% and 27.97%*, respectively. Remember though, past performance isn’t a guide to the future.

    Marlborough benefited from a strong selection of investments in consumer discretionary, industrials, and financial sectors, whereas ASI’s investments in healthcare, financials and technology led the charge.

    Legal & General European was the weakest performer. Investments in technology, consumer discretionary and oil & gas companies hurt performance.

    Annual percentage growth

    30/11/2016 To 30/11/2017 30/11/2017 To 30/11/2018 30/11/2018 To 30/11/2019 30/11/2019 To 30/11/2020 30/11/2020 To 30/11/2021
    ASI European Smaller Companies 24.37% 4.24% 18.10% 16.67% 27.97%
    IA European Smaller Companies 28.39% -7.59% 9.93% 15.91% 21.53%
    IFSL Marlborough European Special Situations 25.34% -7.46% 12.18% 21.53% 38.23%
    Legal & General European 19.09% -13.95% 10.53% 37.50% 2.72%
    IA Europe Excluding UK 23.61% -6.62% 12.16% 9.19% 14.94%

    Past performance isn’t a guide to future returns. Source: Lipper IM, to 30/11/2021.

    More on IFSL Marlborough European Special Situations, including charges

    IFSL Marlborough European Special Situations key investor information

    More on ASI European Smaller Companies, including charges

    ASI European Smaller Companies key investor information

    More on Legal & General European, including charges

    Legal & General European key investor information



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    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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