Personal Equity Plans: Our continental romance

THE SINGLE European currency has raised the profile of continental stock markets among UK investors. Users of Interactive Investor, an internet personal finance site, have ranked Jupiter's European fund as the most popular overall PEP fund, ahead of Virgin's index tracker PEP.

Europe's popularity is hardly surprising. Continental stock markets have performed well recently. Investment analysts believe that Europe is coming of age. Share ownership in countries such as France and Germany is becoming more popular as investors and pension funds have started to buy equities instead of bonds.

"The culture of equities is taking off in Europe so private investors are putting more money into the market," says Roger Guy, principal senior investment manager at fund managers Gartmore. "Institutional investors in Europe have tended to favour bonds, but they are switching to equities."

Privatisations and the restructuring of industries such as banking and telecommunications should create more competition, more profitable companies and higher returns.

Then there is the impact of the euro itself. The single currency makes economic and monetary union a reality for firms within the euro zone. Faced with a market with a population comparable to the United States, the scope for economies of scale are considerable.

"The onset of the euro has created one of the world's biggest trading blocs," explains Chris Rice, fund manager at HSBC Investments. "For any global investor, Europe is an incredibly important asset class that cannot be ignored."

Growth is the main reason to consider European investments. Dividends from continental companies are low by comparison with the UK or North America. Fund managers expect growth to continue as European companies undergo restructuring and as more companies, both private and state owned, have market listings.

"The introduction of the euro changes the growth structure," Mr Rice says.

For UK investors continental funds also offer an insurance against a downturn in the London markets. Continental Europe is at a different stage in its economic cycle. Holding European funds is a useful hedge against any fall in the value of the pound - and most economists expect sterling to depreciate against the euro in the next few years.

Putting money into continental Europe makes sense for investors who already have a range of holdings in either shares or UK-based PEPs. In the past, advisers rated European funds as relatively high risk because of currency factors. The euro means that investors are only exposed to one set of currency fluctuations: between sterling and the single currency.

In practical terms buying continental funds through a PEP is little different from buying a UK-only unit trust. It is increasingly difficult to avoid exposure to the rest of Europe: most large companies quoted on the London Stock Exchange have significant interests in it.

There is enough choice of European funds to let investors choose what level of risk they want to take on. The vast majority of them are actively managed, but trackers are becoming more popular. Last year just under half of all actively managed continental European funds beat their index. (Less than a third of UK active funds outpaced the market.)

Legal and General's European Index Trust aims to track the performance of the FT/Standard and Poor's World Index Europe, excluding the UK. The fund invests most heavily in Germany and France. As a tracker fund it has no initial charge. Some managed European funds have an initial charge as high as 6 per cent.

Market shocks can hit Europe hard. The recent crisis in Brazil has had a depressing effect on Portuguese and Spanish shares, for example, and nobody can be certain whether the euro will be a long-term success. "Europe is a ride with quite a lot of jolts along the way," says IFA Tim Coxon, from the Millfield Partnership.

"But as part of a balanced portfolio, Europe is an option you should not miss."

Contacts: Legal & General, 0500 116622.

IFAs and discount brokers can offer you details of the full range of continental funds.

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
New Articles
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
ebooksAn unforgettable anthology of contemporary reportage
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
News
i100
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.

iJobs Job Widget
iJobs Money & Business

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

SQL DBA/Developer

£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering