Central banks, notably the European Central Bank (ECB), have been applying economic brakes to cool down overheating economies, reminiscent of slowing down a train. Inflation is cooling, economies are stabilising, and a collective sigh of relief can be felt. However, it’s not a uniform picture across the continent. While some regions, like Germany, may be experiencing a slowdown, others, particularly in sunny Southern Europe, are thriving due to factors like “revenge spending” and a boost in tourism.
2024: Soft or hard landing?
Looking ahead, 2024 presents an intriguing puzzle for Europe. Will it be a soft or hard landing? Deciphering this mystery is no easy task. The lingering effects of the pandemic and the Russia-Ukraine situation make predictions akin to solving a Rubik’s Cube blindfolded.
Different sectors in Europe are undergoing a valuation shuffle, with some priced for a recession and others seemingly unaffected. Higher interest rates are causing headaches, especially for firms with floating-rate bank financing.
On the global stage, Europe isn’t receiving a celebratory parade either. Economic challenges in the US and China are sending ripples across European shores. China’s property bubble burst is particularly impacting sectors like travel and luxury goods in Europe.
Amidst these challenges, there is a silver lining: inflation is decreasing in many European countries, including a recent drop in Germany’s inflation rate.
Five funds to consider in Europe
While approaching the European economy with caution, it’s worth considering the continent for investment opportunities.
Mark Nichols, co-manager of the Jupiter European fund, outlines three compelling reasons: attractive price levels relative to other markets, the presence of global champions tapping into worldwide growth, and a unique exposure to premium luxury brands. This concentrated portfolio will have at least 70% of the portfolio invested in the shares of companies that are based in Europe (excluding the UK).
Offering access to a high-conviction portfolio of European equities, European Opportunities Trust leans towards medium and larger companies. Manager Alexander Darwall employs a consistent investment process with a successful track record across various economic environments. The trust has returned over 840%* for investors over Alexander’s 20+ years.
With a style-agnostic approach, the Janus Henderson European Smaller Companies fund focuses on small-cap companies, exploring growth opportunities while also delving into neglected market areas. The fund’s willingness to unearth hidden gems sets it apart from other options within European equities.
Another unique option within Europe is the WS Lightman European fund. A genuine European value offering – a rarity in today’s market – the fund embraces a contrarian approach, relying on extensive academic research demonstrating the historical outperformance of value. For investors who can stomach the potential volatility, this could be a great option, especially if they are looking to balance out their style exposure elsewhere within their portfolio.
Those looking for strong ESG practices might consider FTF Martin Currie European Unconstrained, which maps the contribution of the portfolio to the UN SDGs (Sustainable Development Goals) – both positive and negative – and reports the carbon intensity score. The fund presents a focused, high-conviction portfolio of quality European growth equities. Manager Zehrid Osmani adopts a long-term perspective, avoiding short-term noise and maintaining a 5-10 year horizon.
Europe’s hidden potential
Despite not grabbing recent headlines, Europe has more to offer than meets the eye. Whether you’re a seasoned investor or just starting, the continent’s unique flavor adds diversity and potential to your investment journey. Consider incorporating a dash of Europe into your portfolio—it might just be the missing ingredient that elevates your investment strategy to the next level.
*Source: FE Analytics, total returns in sterling, 20 November 2000 to 6 December 2023
