Cash flows into Europe as economies bounce back

Traditional sectors are a good bet despite the high euro. Julian Knight reports

One credit crunch later and the economic order in Europe changed dramatically.

It used to be Britain in Europe's fast lane, more dynamic, entrepreneurial Blighty running rings around the staid, manufacturing-based and heavily bureaucratic French and German economies. Now, though, Britain looks likely to be the last of the major economies to drag itself out of recession. The economies of France and Germany, on the other hand, as the recent gross domestic product figures show, are pulling out of recession at pace, leaving Britain in their wake.

But what does this mean for private investors, and what are the prospects for turning a profit? "Investors have virtually ignored European companies and funds over the past decade for two reasons. Firstly, many lost a packet during the bust in technology stocks, and secondly, other parts of the world have been much more dynamic than Europe," said Ben Yearsley from investment advice firm Hargreaves Lansdown. The Investment Management Association (IMA) figures show that the least favourite sector among private investors in three of the past nine years has been Europe.

But times seem to be changing. "As an industry we have seen money flowing into European funds and shares from institutional investors such as pension funds. This has not been replicated by private investors yet but it may be soon," said Barry Norris, manager of Ignis Argonaut European Alpha fund. And in August, the IMA figures showed Europe, not the US or emerging markets, topping the league table of total cash being invested.

It is probably difficult to think of Europe as the next big thing after so long in the investment doldrums, but there are undoubtedly some compelling reasons to look to the continent for investment opportunities. "We are in the recovery phase. Companies that ran down their inventories during the turmoil of last autumn are now replacing them, while credit markets have eased and crucially European companies are paying dividends to shareholders," said Mr Norris. Mr Yearsley said that Europe benefits from having strong brands in traditional sectors, an attractive proposition to investors still feeling the pain of the recession. "Europe is full of good companies in areas such as car manufacturing and pharmaceuticals. Big brands appeal in uncertain times," he added.

Direct investment in shares is always highly risky, and it's not as easy for the small private investors to buy company shares overseas as it is in the UK. The overwhelmingly popular route for investors looking to Europe is to go for funds such as unit and investment trusts which invest in a basket of company shares. Mr Yearsley likes the look of long-standing fund Jupiter European and Henderson/New Star European special situations fund. "The latter fund invests in smaller to medium sized companies, riskier but potentially quite rewarding," he said. Fund expert Adrian Lowcock from independent financial adviser Bestinvest likes Casenove European. "It's a blue-chip fund offering broad exposure, investing in any or all European markets outside the UK, and makes a good core holding for any portfolio," he said. "It has a very experienced manager, and has delivered consistently good returns."

But there are a few flies in the ointment, said Mr Lowcock. "The euro is very high at present which means that it may well lose value during the term of the investment which could adversely affect returns." Mr Yearsley puts it this way: "If you buy a European fund today and it gains, say, 30 per cent over three years but the euro devalues against the pound by 25 per cent, when you come to take your money back you gain only 5 per cent. Currency risk always has to be factored in and the worrying thing is I can't see any good reason for the euro being as high as it is."

Even Mr Norris has his concerns. "My worry is that central banks will raise interest rates too soon and kill off the recovery but I reckon there is no danger of that till summer next year."

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins wins the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
News
news
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
music
News
i100
Arts and Entertainment
tvPoldark, TV review
News
(David Sandison)
newsHow living on a houseboat meant I didn't officially 'exist'
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor