The figures come as European investment funds are heading up the PEP performance tables. In its recent analysis, five of Chase de Vere's top 10 performing PEP unit trusts were European funds. What PEP? magazine, which analyses how consistently PEP funds have performed over the past one, three and five years, includes seven European funds among its top 10 unit trusts.
A quiet revolution on the European investment scene is pushing share prices upward. Europe, excluding the UK, has risen 37 per cent in sterling terms from the beginning of 1997 to mid-February 1998. Over the same period, the US has risen 36.5 per cent and the UK has gone up 30 per cent.
Keiran Gallagher, who manages the Newton European unit trust, says: "There is a cultural shift taking place. More Europeans are investing in shares. Germans, for instance, are now looking at equities because fixed-interest stocks, the traditional home for their money, are only yielding 5 per cent. Europeans are increasingly looking to make their own pension arrangements, aware that existing pension schemes won't be enough to provide for them in old age."
The shift isn't just taking place among private individuals but companies themselves. "Shareholder value" is the current buzz phrase in corporate Europe, which previously put workers' rights and civic obligations first. Companies are streamlining and merging to improve their bottom line. Europe is also enjoying a frenzy of privatisations as countries strive to keep their debt levels in line with the Maastricht requirements for monetary union.
For Ben Elwes, European investment manager at Henderson Investors, a clear signal that European companies were improving their act came when Volkswagen streamlined its range of basic car designs from 20 to four. From 1996 to 1997 Volkswagen saw its earnings double, according to Mr Elwes.
Mr Gallagher says there was over pounds 1.5bn worth of merger and acquisitions in continental Europe in 1997. This is set to continue, he says, notably among European pharmaceuticals companies and banking companies but possibly retailers as well.
Continental Europe can account for your full pounds 6,000 general PEP investment if you wish. You could even use your single-company PEP allowance to put pounds 3,000 into the shares of just one European company. But be careful: stock selection is key, as not all European companies are embracing shareholder value at the same rate.
"Companies must actually be implementing changes rather than talking about shareholder value because it is a buzzword they have heard," says Mr Elwes. "Deutsche Bank in Germany said for years it was going to make changes to improve profitability and it never did. Olivetti in Italy offered a big rights issue and it didn't work. Ultimately, a company's credibility suffers."
Monetary union will make judicious stock picking even more critical as companies across the Continent will be operating on a level playing field.
The single European currency could be good news for investors in the UK over the next few years as Britain holds off from membership. Mr Gallagher says: "It all depends on what you think sterling will do against the euro. Our view is that most of the gains on sterling [against European currencies] have been made and it won't strengthen any further. So there will either be a neutral impact or sterling could weaken against the euro, which would boost returns for investors."
q Juliet Oxborrow is editor of 'Personal Finance' magazine.
The leading European trusts
Top returns from European unit trusts over five years
Trust Starting Value pounds 1,000
Old Mutual European pounds 3,196.20
Jupiter European pounds 3,176.70
Gartmore European Select Opportunities pounds 3,029.21
Invesco European Growth pounds 3,018.83
Baring Europe Select pounds 2,911.99
Offer-to-bid prices, net income reinvested, to 1/2/98
Source: Standard & Poor's Micropal