Reasons to invest in Europe
Europe is out of favour with many investors currently, as continued concerns about the European sovereign debt crisis create uncertainty across world investment markets.
Whilst investors have justified concerns about the Eurozone economy as a whole, this does not necessarily translate to European stocks.
In a new briefing note to advisers from Fidelity International, various fund managers share their views on reasons to invest in Europe.
Vincent Devlin, manager of the BlackRock Continental European fund, points to the attractive valuations available in Europe.
“Europe is currently trading at extremely attractive valuations, with a number of different valuation metrics suggesting that equities are trading well below their long-run average price levels. This suggests that current share prices do not reflect the ability of companies to grow their earnings in future, and that Europe as a region is trading at a considerable discount to history.”
For the long-term investor who is prepared to accept a degree of short-term volatility, this could represent a good buying opportunity.
Sam Morse, Portfolio Manager, Fidelity European Fund highlights the global nature of many European companies:
“Many European companies are global leaders in their industries. Over many years European companies have created strong brand presence across the globe through superior products and innovation. As a result, many generate much of their earnings outside of Europe.”
In this respect, European markets are similar to the UK, where a large amount of earnings are also derived from overseas activities. Just because a company is listed or based in a particular country does not mean their fortunes will be tied to the economy of that nation or region.
Stephanie Butcher, Fund Manager, Invesco European Equity Income Fund talked about the yield opportunities from some European companies:
“In recent years, continental European companies have been attaching a higher priority than ever to dividends and dividend growth, to the extent that Europe now offers the highest yield in the developed market.”
Traditionally, investors looking for income have focused their portfolios on UK companies as these tended to provide the best dividend opportunities. With companies in Europe and other regions now attaching greater importance to dividends and dividend growth, this traditional approach needs to be reassessed.
Europe is not all bad news, although looking at the headlines coming out of Greece at the moment it would be easy to assume it was.
Investors should take care to understand the real impact of European sovereign debt and economic fragility on their own portfolios.
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