Don't turn from Europe because of Greek turmoil
Saturday 25 June 2011
greece may be getting all the headlines at the moment, but what of the rest of Europe? Do the financial woes of Greece – which have infected Ireland, Portugal and Spain, too – mean that investors should flee from Europe? Or should they actually be looking to the region for exciting growth opportunities?
The fact that the Greek government survived this week's confidence vote gave the markets a brief bounce, but that's all. Worries continue and a default looks on the cards, which could mean worse problems for Portugal, for instance. From an investor's point of view the uncertainty leaves the so-called PIGS (Portugal, Ireland, Greece and Spain) as no-go areas, but which countries could drive profits?
Our traffic lights guide (centre right) gives a brief indicator. But talking to European investment specialists yields plenty of suggestions of potentially exciting opportunities. For instance, Vincent Devlin, manager of the BlackRock Continental European fund, says: "Germany is one of the most attractive economies in the developed world."
His reasoning? "Germany supplies the axes and picks to the rest of the world and is a major supplier of many high-growth emerging markets such as China and India. It has recovered from the global recession at a much faster rate than other areas of the world and is economically far healthier than many other countries, with record low levels of unemployment and one of the highest growth rates in Europe." He also points out that German companies are among the most technologically advanced in the world in areas such as automobiles, machinery and engineering.
For most European fund managers, it's individual companies that are attractive, rather than countries. That means it can also be worth looking to the likes of Denmark, France, Sweden and Switzerland.
Europe can also be a good home for income seekers, says Stephanie Butcher, manager of the Invesco European Equity Income fund. "In recent years, Continental European companies have been attaching a higher priority than ever to dividends and dividend growth, to the extent that Europe now offers the highest yield in the developed market," she says.
Sam Morse, portfolio manager of Fidelity's European fund agrees. "Many European companies will grow their dividend over the next few years which indicates that they are positive on their own growth potential despite the macro issues confronting their economies."
Morse picks out Swiss food giant Nestlé. "It is successfully promoting products in emerging markets while economies of scale provide a cost advantage over competitors. These factors mean that Nestlé possesses long-term structural growth potential and is cash generative."
Aberdeen's head of UK & European Equities Jeremy Whitley believes that European equities are the cheapest in the world. "Europe is a manufacturing and technological powerhouse and has fostered the development of intellectual property," he says.
"The pharmaceuticals sector in Switzerland, the capital goods sector in Germany, and telecoms in Sweden are all cases in point, protected as they are by patents and strong brands. While sectors like French cosmetics also benefit from being seen as an arbiter of good taste by the new rich in emerging markets."
Morse also mentions the fact that many European firms generate much of their earnings outside of Europe. "For example, luxury goods companies, such as Hugo Boss, have established themselves as must-have brands in China, while heavy investment in R&D has seen a company like the insulin manufacturer Novo Nordisk become a global leader in its field with strong earnings growth."
Butcher says that it is possible to pick up well-run companies with international exposure cheaply. "Examples of that include businesses like Repsol and Telefonica (both Spanish listed) which generate a significant proportion of revenues and profits from overseas," she says.
What's clear is that strong growth opportunities remain across Europe and investors shouldn't be running scared because of the ongoing high-profile problems in Greece. But with the ongoing uncertainty, picking the right investments is more crucial than ever.
Financial fund managers look to northern Europe
Greece's problems have triggered a shakeout in the financial funds sector as managers reposition portfolios to protect against losses, writes Joe McGrath. Should Greece default the credit default swap market would explode, leaving liabilities and losses for investors.
US and German banks have the largest exposure, so financial fund managers have been moving money away from them and into Scandinavian banking groups to protect investors' cash.
As at the end of May, the Norwegian financial group DnB NOR was the second most popular stock held in financial funds' top 10 holdings after HSBC.
DnB posted strong profits for the full year of 2010 of £1.58bn, up from £789m in 2009. An ongoing cost-cutting programme, coupled with lower write-downs on loans, has made the bank appealing together with the group's dividend policy, which aims to distribute 50 per cent of profits.
Other Scandinavian holdings which have proved popular include the Nordic-Baltic banking group Swedbank and the financial group Skandinaviska Enskilda Banken.
Meanwhile, the best performing financial fund over the past year was the Sanlam Global Financial, which climbed almost 16 per cent. It's run by Kokkie Kooyman, who says he made gains by underlining his investments in the reinsurance market just before a big rally. "Towards the end of last year, we started investing more in the catastrophe insurers such as Hiscox and Amlin in England and French insurer Scor," he says. Before the rally, many reinsurers had hit historically low valuations.
Nick Brind, manager of Polar Capital's Financials (Income) fund, made nearly 8 per cent over the past year. He made good returns from the Scandinavian financial group Sampo – which was up about 20 per cent to the beginning of June, including currency.
Research from Financial Funds survey in July's 'What Investment', available next week.
The Microsoft mogul told fans a few home truths during his Reddit AMA
10 tips for taking out a personal loan
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Weekly Money: Round-up of the personal finance stories you may have missed 26-30 January
Revealed: Amazon earns more through government grants than it pays in tax
City Watchdog to investigate banks' handling of PPI compensation claims
- 1 Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
- 3 Dad attempts revenge on teenage daughter, plan backfires spectacularly
- 4 Ball pool for adults opens in London
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion