The multi-manager believes the European equity market is around 25 per cent undervalued compared with markets in the UK, US and Asia.
"Investors who only look at the sovereign debt crisis when constructing their portfolio without factoring in valuations are ill-advised," he said.
"European companies are international businesses. While they might have some exposure to the PIIGS economies, events in Portugal and Greece are not going to significantly affect them as the bulk of their profits come from elsewhere."
His comments come in light of a Trustnet poll that indicated 40 per cent of investors have become more defensive as a result of the ongoing sovereign debt crisis.
Source: Trustnet.com
Only 16 per cent saw the devaluation of European stocks as a buying opportunity, while 43 per cent of investors’ portfolios have not been affected either way.
Potter says Angela Merkel and Nicolas Sarkosy’s rallying behind the Euro is significant and should allay fears that countries with a larger market share could default.
"The potential for returns is worth the risk. Immediately after the events in Greece, the [Thames River Global Boutiques] fund’s exposure to Europe stood at 12 per cent, but that’s up to 19 per cent now," he added.
While the manager is quite bullish on European equities, he is avoiding fixed interest. Potter says investors who are increasing their exposure to European government bonds are inadvertently making their portfolios more risky.
"Investors would be wrong to view European government bonds as a defensive play," he said. "On the whole, fixed interest is more risky than equities at the moment."
Potter has slightly decreased his exposure to Europe in the last few weeks in a bid to capitalise on a period of underperformance by emerging market-focused funds. That said, the manager says this is a short-term tactical play, and sees Europe as better value in the long-term.
Thames River Global Boutiques has performed in line with its IMA Global Growth sector over a three-year period, with returns of 17.82 per cent.
Performance of fund vs sector over 3-yrs
Source: Financial Express Analytics