Three Europe-focused funds riding the political waves

Emma-Lou Montgomery
Emma-Lou Montgomery
Fidelity Personal Investing28 November 2017

No one saw the collapse of Germany’s coalition talks coming and the latest political shock to hit Europe has undoubtedly sent waves of uncertainty through the financial world.

Germany’s political system has long been admired for its stability, yet now that stability has been shattered and Chancellor Angela Merkel and her government are in uncharted political waters. A minority government and a snap election are two of the options on the cards, yet neither has happened in Germany’s post-war history.

Ms Merkel has long been seen as the matriarch of Europe, the calm hand on the wheel of the ship that could, many fear, rapidly go off course without her. So for Germany to face political uncertainty at a time when so much remains unresolved across Europe as Brexit talks rumble on and the future of the EU is scrutinised, investors may be wondering whether they should even be looking at European stocks at the moment.

For Stephanie Butcher, manager of the Invesco Perpetual European Equity Income Fund though the answer would be a resounding ‘yes’.

Butcher is positive on Europe, especially the value part of the market. Her overriding philosophy is to focus on valuation. She says that over-paying for any asset, regardless of its quality, is an additional risk that does not need to be taken. Her portfolio is currently weighted heavily towards banks.

On the subject of quantitative easing (QE) the pros and cons of which still loom large over Europe, Butcher says continuing QE does make income harder to find, but she is still finding plenty of income opportunities.

The Invesco Perpetual European Equity Income Fund is one of seven European funds chosen by our experts for the Select 50 range of specially-selected funds.

The Baring German Growth Trust is another. Entirely focused on the German market, the investment aim of the fund, managed by Robert Smith, is to achieve long-term capital growth. The manager's policy is to invest not less than 51% in companies with suitable investments in bonds, convertible securities and warrants thrown into the mix as well. The top ten holdings currently include BASF, Allianz, Bayer and Siemens.

The FP Crux European Special Situations Fund, co-managed by James Milne and Richard Pease, looks for undervalued gems. Its aim is to invest in companies in Europe with a combination of strong competitive advantage, low capital intensity (they don’t need huge amounts of cash and debt to operate), competent management teams, and conservative valuations.

Pease and Milne say they prefer to invest in European companies with strong global operations. In particular, they like dividend paying firms which can grow by making acquisitions, rather than by relying on the rise of the broader economy.

 


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