While investors have been rewarded six years after Mario Draghi said the European Central Bank would do “whatever it takes” to support the eurozone, with the best performing fund delivering 246.78 per cent, some argue there are still reasons to be cautious. 
“There are reasons to be optimistic but I think there are also motives to be cautious, including political risks and Trump’s tariffs,” said Darius McDermott (pictured), managing director of Chelsea Financial Services.
In the following lines, we look back six years on Draghi’s famous speech and review European equity funds’ performance over the period.
Devoted to preserve the euro and keep the eurozone intact, European Central Bank president Mario Draghi stated his determination to do “whatever it takes” in a conference held in London in July 2012.
The speech was delivered ahead of the eventual launch of quantitative easing by the ECB. When easing started, the ECB said the measures were responding to the challenges posed by the three different phases of the economic crisis.
In the first phase, the ECB aimed at providing liquidity to banks while keeping financial markets functioning.
In the second phase, the ECB opted for introducing measures aimed to address markets’ malfunctioning and to reduce differences in financing conditions faced by businesses and households in different euro area countries.
Asset Purchase Programme (APP) monthly net purchases
Source: ECB
The measures introduced during this period included the purchase of debt securities, the execution of very long-term refinancing operations and a series of Outright Monetary Transactions.
In the third and final phase, with short-term interest rates already close to zero, the ECB implemented measures aimed at preventing a credit squeeze – the reduction of the general availability of loans – as well as the risk of deflation.
To this end, the central bank started an asset purchase programme of both public and private sector securities in order to avoid the risks of a very long period of low inflation.
With the MSCI Europe ex UK index up 119.47 per cent compared with returns of 82.22 per cent for the FTSE All Share over the last six years, investors who trusted Draghi to be true to his words in July 2012 have been rewarded.
Over the six years, the average IA European ex UK fund has returned 120.82 per cent, with the best performer, the five FE Crown-rated Man GLG Continental European Growth, almost doubling this at 246.78 per cent.
Rory Powe’s £1.6bn fund is also the best performing fund in the IA Europe ex UK sector over five and 10 years.
FE Alpha Manager David Walton’s Marlborough European Multi-Cap fund was the second-best performer with a gain of 189.15 per cent and Alexander Darwall’s £5.5bn Jupiter European was third, up 185.80 per cent over the period.
Next in the top five best performers since Draghi’s famous speech is Schroder European Alpha Income with a 173.77 per cent total return. The £1.3bn fund was followed by BlackRock European Dynamic and Waverton European Dividend Growth, with respective gains of 167.88 and 166.89 per cent.
Top 10 European equity funds
Source: FE Analytics
Will these good times continue, however? With monthly net purchases currently amounting to €30bn on average each month, the eurozone’s central bank has already announced its intention to call a halt to its quantitative easing programme.
“After September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15bn until the end of December 2018 and that net purchases will then end,” the ECB’s governing council stated in June.
While some believe the changing investment backdrop caused by the end of quantitative easing in Europe is going to be more supportive for active managers, others worry about the declining stock correlation and increasing volatility going forward.
According to McDermott, there are both reasons to be optimistic and to be cautious in the months to come.
“There are three reasons to be cautious. Firstly, I think political risks remain. As we saw with the inconclusive Italian elections earlier this year, there are still plenty of political risks,” Chelsea Financial Services’ managing director noted.
The second issue to keep an eye on is Trump's tariffs: “Donald Trump is set to meet with European Commission president Jean-Clause Juncker this week as the two look to find a solution to escalating trade war tensions.”
As McDermott pointed out, Europe's sensitivity to higher US tariffs is second only to Asia's, with the auto sector particularly in the firing line.
The third aspect to bear in mind, he noted, is Draghi's successor as president of the EU’s finance head, especially given the ECB and the 19 countries sharing the euro’s importance within the global economy.
“Draghi's term comes to an end next year and the leading contender for his successor is known to have disagreed with some of Draghi's policies. We could see more market uncertainty as the swap-over approaches,” McDermott said.
However, as he noted, as the continent recovers from the financial crisis and the economy strengthens, there are also reasons for optimism.
“From an economic viewpoint the outlook for the European economy is still looking healthy, maybe not quite as good as this time last year, but certainly still attractive,” McDermott noted.
Europe’s GDP growth over 10yrs
Source: World Bank
With European companies in better shape, he highlighted the upcoming quarters’ results are going to be crucial although noted the hope is that earnings will remain “strong and above expectations”.
“Analysts' focus will be on capital expenditure plans as well as the earnings outlook to best gauge confidence levels,” he said.
Finally, McDermott noted valuations are still attractive, which can throw some investment opportunities: “European equities look better value compared with other developed equity markets and their own bond market.”