Developed European economies are mature and in a good year experience only around 1 to 1.5 per cent growth, argues Tim Stevenson, fund manager of Henderson Eurotrust but parts of this will do better and longer-term European companies will benefit from exports to emerging economies.

Stevenson said continental European companies have great staying power and investors excited about the prospects for Asia should note that they are manufacturing things for Asia.

For example, ophthalmic lense maker Essilor sells into India, and should see benefits over the next five to ten years, while electrical engineer Schneider is doing business in China.

Although the strength of the Euro is not helpful he notes that exports from this region have held up strongly. He added that devaluing a currency is not a good solution as this means input costs can rise offsetting the advantage of a strong currency.

In any case, multi-nationals such as Siemens have many of their cost bases in US dollars.

Longer-term growth will be driven by themes such as outsourcing in areas including security, cleaning and logistics while ageing populations will lead to a growth in savings as governments cannot continue to support retirement. Ageing populations should also benefit healthcare stocks.

Stevenson admits in the short-term that European stock markets could go through a period of consolidation, in particular because number of companies are engaging in rights issues. But this presents opportunities for long-term investors to buy good quality stocks at cheap valuations.

He anticipates a 'V' shaped recovery though said it could take some time before growth returns to trend levels, while earnings figures will not be good in 2009, though should start to improve in 2010.

A long-term term focus also seems beneficial at sector level: over five years AIC Europe was ten out of 51 sectors over five years with a 77.3 per cent total return, according to Trustnet as of 30 October. Over one year it is 17 with 47.8 per cent.

However, Eurotrust’s long-term focus on quality stocks means there have been numerous times when it has underperformed over shorter periods including when markets rallied in 2003, according to Stevenson. Most recently it has missed out on the rally which started in March due to under exposure to distressed shares, which increased most.

WINS data as of 30 October shows that over 1, 3 and 6 months Henderson Eurotrust made net asset value returns of -4, 12 and 13 per cent, in contrast to FTSE Europe ex-UK which returned -4, 15 and 22. The sector average for AIC Europe over these periods is -2, 17 and 26.

However, over three and five years Henderson Eurotrust returned 12 and 83 per cent, against 6 and 63 per cent for FTSE Europe ex-UK and 6 and 70 for AIC Europe.

Stevenson said that while he is keen to take advantage of cyclical opportunities only companies which fit the trust’s criteria of strong longer term growth are added. He said around 15 per cent of the portfolio is holdings added within the last three months, examples being Henkel, Daimler and Schneider Electric.

He anticipates an upturn for these in 2010, noting that over September some better quality stocks have already started to recover.

Eurotrust has also been disadvantaged since March because it has no gearing. However, the trust is putting in place a borrowing facility and will then look to raise gearing to about 10 per cent. As at the end of September it had cash of 1.9 per cent.

Stevenson said the trust is now fully invested and should have a borrowing facility soon.