The tide may be turning for investors in Europe. After several years of challenging economic news, there’s a sense of renewed optimism.
A survey of investment managers released in September 20151 found that nearly half (49%) of respondents believe European equities are undervalued — or trading at attractive prices.
Economies in the Eurozone are benefiting from the European Central Bank’s (ECB’s) decision to buy about 60 billion euros in bonds monthly, which started in March 2015. In December 2015, the ECB announced that the program would continue until at least March 2017.2 That’s a lot of economic stimulation, which would support Eurozone companies.
Risks remain, of course, and need to be monitored. These include ongoing economic struggles in Greece, the still simmering conflict between Ukraine and Russia, and the impact of China’s slowing imports on global trade and commodity prices. We’re also keeping an eye on real investment — money used to buy tangible, productive assets such as equipment and machinery — which is critical for companies to grow.
What is the most prudent way to seize investment opportunities in Europe?
Mutual funds are a good place to start.
Focus on Europe
Some European equity funds concentrate on a specific country — for example, the United Kingdom or Germany. More common in Canada are funds that invest across a wider European region. We can still narrow your focus — say, to the Eurozone — but the fund manager has greater flexibility to choose the best investments across countries.
Within the European equity fund category, we can tailor our approach to suit your needs:
- Investment style. Growth funds focus on companies positioned to achieve high earnings growth, while value funds seek out businesses trading at a discount to their intrinsic worth.
- Capitalization. Some funds focus on large-cap companies that may offer more stability and steady earnings. Others focus on mid-cap businesses that may have greater growth potential.
- Dividends. If income generation is a priority for you, we can look for Eurozone funds that pay dividends.
Focus on the world
Also worth considering are global funds, which offer different levels of exposure to Europe as well as other regions. These funds may focus on equities, fixed-income investments, or a mix of both. If you’d like to consider tapping into investment opportunities in Europe, we can evaluate individual funds to find the best for your portfolio.
1 Northern Trust, Investment Manager Survey Report, Third Quarter 2015.
2 ECB press conference, December 2015.
Larry Kleinmintz, R.H.U., T.O.T., M.D.R.T.
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