Income potential in Europe reaches new heights
Andy Parsons, head of investment research at The Share Centre, says there are many advantages to looking outside the UK for a reliable earnings stream, with Standard Life European Equity Income one such option.
The universe that investors can select their potential holdings from is greater in Europe than in the UK, ensuring a real ability for income diversification across companies and sectors and much less of a reliance on large cap constituents.
The debt crisis in Europe has added pressure to the currency and resulted in incredible equity valuations.
So for the brave, now may be a good time to dip their toe into European equities, particularly if income-producing stock is the investor’s preference.
Companies that produce an income tend to be more mature with a global reach and a recognisable brand.
In the case of some European companies, they can trade on a discount to their global peers due to the association of the sovereign debt issues of the country in which they reside.
A weaker euro should provide an opportunity for investors to start picking up some cheap European blue chip stocks, particularly those that have a strong export bias.
The threat of default from Greece remains; however, much of the attention has now switched to the larger nations of Spain and Italy.
Financial aid has recently been made available to the Spanish to help support their banking sector and while short-term respite can be seen, history has already taught us that unease and tension within the financial markets soon returns.
Volatility will undoubtedly remain within Europe for the foreseeable future. However, businesses will continue to strive to develop and further their products and services, thereby opening up investment opportunities.
The Standard Life European Equity Income
fund is managed on a concentrated basis, holding only 53 stocks and thereby demonstrating the manager’s conviction in his investment decisions.
Aside from the individual stock-picking flexibility, the fund also benefits from the proven success of the Standard Life winners-list approach, in which the various investment teams are given the group's most preferred companies within a region.
Should a firm that meets with the fund's overall investment objectives appear on the list, the said portfolio will be required to hold it.
Managed by Will James, the fund will look to hold companies with a dividend that it believes is not only stable and reasonably high, but that also has under-appreciated growth potential.
With all the concerns over the European sovereign debt issues, investors will be reassured when looking at the overall portfolio to see a current preference for more northern European countries and companies.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The fund has only been running since April 2009 and yet in that time, it is ranked first quartile over three years, returning 36.5 per cent compared with the sector average of 26.80 per cent.
Over one year, it is ranked fourth out of 107, with losses of only 4.09 per cent. By contrast, the average portfolio in IMA Europe ex UK is down 14.04 per cent.
The fund is currently yielding 5.61 per cent, which is well above average for a fund in its sector. Indeed, only Newton European Higher Income is currently yielding more.
Will James is an FE Alpha Manager. The fund has five FE crowns and £708m assets under management (AUM).