Although the German elections are the next possible hurdle investors will have to face, recent economic data suggests that the region is starting to recover in some capacity, which has led to a shift in sentiment.
Valuations form another part of the bull case for the continent, with European companies currently cheaper than many of their US and UK companies.
With that in mind, FE Trustnet asks industry experts which funds they would back for an investor who wants short-, medium- or long-term exposure to European equities.
Three-year horizon – Blackrock European Dynamic
Investing in European equities for a short period of time may be regarded as a bit of a gamble.
Although many experts would not recommend buying a fund in the sector over such a short period, Charles Stanley Direct’s Rob Morgan says it could do better than expected over this time. He adds that for more aggressive investors, the BlackRock European Dynamic fund is a good fit.
"For the shorter term, I really think Europe could surprise on the upside," Morgan said.
"If an investor was bullish on Europe and wanted a fund for three years, then I would be looking for something a little more aggressive than others in the sector. The BlackRock European Dynamic fund is one we like."
"The manager tends to be quite aggressive, however that can mean it could be quite volatile."
The five crown-rated BlackRock European Dynamic fund has been run by FE Alpha Manager Alister Hibbert since March 2006.
The £1.8bn fund is a top-quartile performer in the IMA Europe ex UK sector over three years with returns of 59.62 per cent, beating its benchmark – the FTSE World Europe ex UK index – by more than 20 percentage points.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Although Morgan points out the fund has the potential to be volatile, it has had a very similar annualised volatility to the sector and index over the three years. The fund also boasts top-quartile returns over five years.
In terms of current positioning, the fund is overweight the healthcare sector but underweight financials, consumer goods and basic materials.
BlackRock European Dynamic has an ongoing charges figure (OCF) of 1.67 per cent and requires a minimum investment of £500.
Five-year horizon – Standard Life European Equity Income
Chris Mayo, investment director at Wells Capital, says that the shortest amount of time an investor should plan to hold a European fund for is five years, but he says they should still be quite cautious.
Mayo recommends FE Alpha Manager Will James’ Standard Life European Equity Income fund, because of its focus on dividend-paying companies.
"Over five years, we think investors should be looking at a core defensive-style fund," he said.
"We like the fund because of its income potential. Our analyst team met with them and they liked the way the fund was made up. We favoured it to others in that space because it compared favourably in terms of performance and its ability to maintain its yield," he added.
The five crown-rated Standard Life European Equity Income fund was only launched in April 2009 but it has already grown to £1.5bn.
It is a top-quartile performer in the IMA Europe ex UK sector over three years and has comfortably beaten the FTSE World Europe ex UK index, with returns of 52 per cent. However, it has underperformed over the short-term.
The fund has a yield of 4.24 per cent and our data shows that it has increased its net distribution over the past 12 months.
It is made up of 57 holdings from a diversified mix of countries. Standard Life European Equity Income invests across the market cap spectrum, but its two largest holdings are the giant multinational pharmaceutical companies Sanofi and Roche.
It has an OCF of 1.61 per cent and requires a minimum investment of £500.
Ten-year time horizon – Henderson European Special Situations
Morgan says that when it comes to the European sector there is no need to take undue risk by dipping into the lower end of the market cap scale, as he says there are many top-performing managers who could deliver high returns from larger companies in the long-run.
Because of that, he favours FE Alpha Manager Richard Pease’s Henderson European Special Situations fund.
"For that period of time, I would go for someone like Richard Pease. He will invest in the best companies that can continue to beat the market. Pease doesn’t need to be aggressive, he is just a fantastic manager that just happens to invest in European companies," he added.
The five crown-rated Henderson European Special Situations fund was only launched in October 2009; however, Pease has a lengthy career running European-focused equity funds.
The fund itself is a top-quartile performer since its launch, with returns of 61.54 per cent. This is more than double the amount made by both the sector and its benchmark – the FTSE World Europe ex UK index.
Performance of fund vs sector since Oct 2009
Source: FE Analytics
The Henderson fund has also had a lower annualised volatility than both sector and the index over that time.
Pease takes a rigorous bottom-up approach to investing whereby he avoids market noise. He currently favours chemical stocks and his preferred regional allocations are to the Swiss, German and Dutch equity markets, which combined make up 50 per cent of his portfolio.
Henderson European Special Situations has an OCF of 1.76 per cent and requires a minimum investment of £1,000.
