Tuesday, 1 December 2015

5 investment funds set to rally in Europe.

Last week’s news that the European Central Bank (ECB) wouldn’t pump a greater amount of money into the economy each month disappointed many investors and the UK FTSE dipped as a result.
However, ECB chief Mario Draghi did pledge to continue quantitative easing until March 2017 or beyond, which is at least six months longer than the original deadline, and cut the region’s deposit rate in an attempt to boost the eurozone’s recovery.

European equities have been one of the best performing asset classes in 2015 despite issues surrounding the Greek debt negotiations and many market commentators expect another strong year for the continent’s market in 2016.

Now the ECB has committed to its quantitative easing program, the odds are European equities will make further gains from here are five fund picks that should benefit from a liquidity-fuelled rally.

Threadneedle European Select
For investors looking to buy into a big brand fund, Threadneedle European Select could be set to benefit from an EU rally. This has long been one of the highest rated, core European equity funds. It is a concentrated portfolio of circa 40 mostly larger European companies, with strong competitive advantages, recurring revenues and consistent above average earnings growth.

Well recognised brands often fit this profile and constitute a large proportion of the portfolio. These include Unilever, whose diverse brands include Marmite, Wall’s ice cream, Persil and PG Tips; Richemont, whose luxury brands include Cartier, Jaeger-LeCoultre and Montblanc; and brewer Anheuser-Busch InBev which is in the midst of a mega merger with SABMiller. 

Neptune European Opportunities
The immediate market reaction following today’s ‘underwhelming’ ECB announcement is totally in keeping with recent investment behavior. By falling short of expectations, the market is highlighting an investor addiction to central bank asset purchases (QE), with stocks and bonds selling off aggressively and the euro appreciating. By increasing longer-dated interest rates, banks can command more margin on their loans, which acts as an incentive to extend more credit.

In a more profitable environment for banks we would recommend the Neptune European Opportunities fund, a strategy which is firmly overweight retail banking.

Edinburgh Partner European Opportunities Fund
If you assume that value stocks are going to be better than safer growth stocks, though that might not necessarily be the case, then Edinburgh Partners European Opportunities is our value option within Europe. It’s had a tough year so far, but it stands a good chance of it catching a rebound in sentiment.

Argonaut European Enhanced Income
The two main reasons I’ve chosen this fund are that bond yields are going to remain compressed, meaning equity income will remain in demand with bond yields so low. In addition, the fund hedges out currency and further stimulus is likely to keep the euro weak.

As the name suggests, the fund aims to achieve a high income yield (by writing covered call options) as well as some capital growth, and does this through a concentrated portfolio of 47 holdings.

Hansteen Holdings
You may choose to opt for a REIT to utilise the continuation of QE. We saw property prices remain strong in both the UK and US during their own period of QE, so with further stimulus in Europe, demand should be strong.  We prefer to target holdings with industrial and office exposure.

As such our preferred option would be Hansteen Holdings, which invests in both UK and continental European industrial property. The properties it holds (it currently has 538 in the portfolio) are chosen for a combination of strong occupancy rates and high yields, and the team finds a majority of these in Germany, the UK, Belgium and the Netherlands.

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