Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

A return to full lockdown conditions in Austria – almost two years after the first Covid-19 case was detected in China – has sent shivers through European markets, with stocks dropping back further this morning.

Stricter rules elsewhere – including the banning of Christmas markets in parts of Germany – have raised concerns that growth forecasts for the entire continent may now be at risk. In October, the IMF projected Europe’s economies would expand by 5.2% this year and a further 4.4% in 2022.1 

Fears are growing that rising cases of Covid-19 and corresponding capitulations by governments could now cause people to overlook Europe as an attractive investment destination.

That, however, could prove a mistake, particularly with the pound hovering close to €1.20, making eurozone assets about 6% cheaper in sterling terms than they were a year ago2.  

The onset of fresh Covid restrictions undoubtedly poses additional risks to the economic outlook. It’s important to remember, however, that no large European country has reverted to a full lockdown.

Moreover, these latest restrictions come at a time of great economic recovery – both at home and abroad – driven by historic levels of government spending and ultra-low interest rates.

On eurozone rates, tighter rules on mobility and socialising in parts of Europe should only strengthen the resolve of the European Central Bank to keep the purse strings loose.

The underlying attractions of Europe remain undiminished by recent developments. These include the world’s largest consumer single market; a high exports exposure to developing countries; a wealth of internationally recognised consumer products and luxury goods brands; and a world leading position in greenhouse gas avoidance measures.

These factors have helped feed a rapid rebound in corporate profits that has, surprisingly perhaps, even eclipsed growth in America. Latest reports show European earnings skyrocketed 60% in the third quarter over year-ago levels, and estimates suggest they may increase by as much as 51% year-on-year this quarter3.

These figures subsume Europe’s large banking sector, which remains a drag on returns relative to the US. Banks stateside have fairly consistently delivered superior returns following a period of higher US interest rates between 2016 and 2019 and amid generally higher levels of fee-generating corporate activity.

Yet European stocks trade at an overall discount of about 22% to their US peers, based on the amounts companies in both regions are expected to earn over the next 12 months⁴. In Europe’s case, faster growth doesn’t come at a premium price.

Investing in a European fund can bring a good deal of additional diversification to your portfolio, through sectors not well represented in the UK and across a diverse group of nations, each with its own particular strengths and weaknesses.

Fidelity’s Select 50 list contains five actively managed funds investing in Europe, including the BlackRock Continental European Fund and JOHCM European Select Values Fund.

You can read about all five funds here


1 IMF, October 2021
2 Bloomberg, 23.11.21
3 I/B/E/S data by Refinitiv, 06.11.21
4 MSCI, 29.10.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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