Political problems, a false currency and a lack of companies in the sectors he likes are all reasons Rathbones fund manager David Coombs has a long-term negative view on Europe.
Europe has had a tough time of it over recent years as economic growth has stalled, political issues formerly with Greece and more recently with the UK leaving the EU dampening the market.
Yet, this year the market has been the best performer, returning 15.24 per cent year-to-date as economic data has improved and issues in other markets such have made Europe attractive on a relative basis.
Performance of indices over YTD
Source: FE Analytics
But one fund manager not buying into this is David Coombs, who runs the RMAP range of funds.
“Europe I am still at a long-term negative,” he said. “That’s not to say that markets can’t get excited about some European data if something points upwards or European financials have a good month: I am a long-term manager so I am not interested in the short-term benchmark plays.”
One reason for his staunch underweight position in Europe is a political one, noting that with so many countries operating under one block there are bound to be frictions.
“For me, Europe structurally has huge headwinds and that’s to do with the fact that it doesn’t have uniform fiscal policy,” he said.
“Until there is uniform fiscal policy across the eurozone I will always be strategically underweight to the European market.”
Without uniform fiscal policy, there should ultimately be heightened political risk, as countries within the EU may be at different stages of the economic cycle and therefore one policy may not fit all the needs of the various countries.
For a similar reason the manager is hedged out of the euro, which he said is an artificial currency. 
“I am hedged out of the euro because I think as a currency it is false in the way that it is put together,” he said.
“I don’t like investing in manufactured investments and the euro is a manufactured currency with huge political risk that I don’t need to take.”
“My view on Europe is incredibly boring because it hasn’t changed for the last five or 10 years and it won’t change until we have a chancellor of the European exchequer though they probably wouldn’t call it that,” Coombs added.
“Someone who sets capital gains tax or wealth tax across the eurozone so you have fiscal and monetary policy being decided in tandem by the same body managing the same currency and the same economy with an interest rate that is applicable for all the economies in it – then I might be interested.”
He said that this scenario is as unlikely as it has ever been thanks in part to the Brexit vote last year, which could convince other countries to make a similar move out of the EU.
“Brexit is a huge political risk,” Coombs said. “If Britain can leave and get away with it then if you’re a Northern European country and see that Britain is not contributing and is doing well then they will ask why they are in the club supporting European states that retire earlier than they do.
“Why do German taxpayers feel like they have to subsidise the unemployed in Greece and Spain? That still to me is a political and philosophical problem with the European Union.”
This was an issue when the French general election occurred in April, with many concerned that euro-sceptic Marine Le Pen may win due to unrest among the French people over their involvement in the EU.
But while the new president of France Emmanuel Macron won, alleviating these fears, Coombs said other political risks remain.
“I don’t think – just because Macron is in – that political risk has gone away,” he said.
“As we’ve just seen everybody has just got excited because Macron won in France and saved the day but Italy might have an election in October, Merkel is not in yet and if Brexit is a success for the UK then I suspect euroscepticism rises in Europe.”
Away from politics, the manager said the market does not fit into the themes that he is interested in at the moment.
“Europe is less productive than the United States; capital is not employed as efficiently as it is in the US and if I’m looking at the companies that create disruption, I can list you 20 from the US,” he said.
“If I named you 10 companies – [such as] Disney, Google, Coca-Cola, Facebook, Amazon – [can you] give me the European equivalents?
“There aren’t any so you can’t tell me the market is cheaper than America because I am not comparing like-for-like.”
Indeed a common argument among investors in favour of Europe relative to the US at the moment is that the market has underperformed for a long period of time, making it cheaper on a relative valuation basis.
Performance of indices over 10yrs
Source: FE Analytics
As the above shows, the market has lagged its US counterpart by 120.52 percentage points over the last 10 years, with valuations in the US at all-time-highs.
But Coombs said while valuations are lower relative to the US he cannot gain the same exposures in the different markets: “You try and get overweight tech in Europe – good luck.
“My point is that the European stock market does not have enough companies that I want to own and the ones I want to own are very expensive and the ones I don’t want to own are cheap because they’re challenged,” he said.
The manager does own some European stocks, though he differentiates his portfolio by the earnings derived from a location rather than the domicile of it.
As such, he owns large, internationally-facing companies such as pharma giants Novartis and Roche.
“They tend not to be domestic European companies as their customers aren’t domiciled in Europe. They are global companies that happen to be listed in Switzerland and Germany.”