There are many reasons why investors might want to avoid Europe. Slowing growth, political crises and the ongoing Brexit uncertainty present several challenges and could make investors think twice before investing in the region.
Despite the negative headlines, however, Europe is home to many well-run companies and world-famous brands and investment companies investing in the continent have performed strongly. The average investment company in the Europesector has returned 70% and 176% over five and ten years. Companies in the European Smaller Companies sector have performed even better, generating returns of 85% and 195% over the same timeframes.
So where are investment company managers finding returns in Europe and how are they navigating the political and economic risks? Ahead of 31 October, the Association of Investment Companies (AIC) has gathered managers’ views from the Europe and European Smaller Companies sectors on whether Brexit is having an effect and whether the outlook for European investing could be brighter than some think.
Why invest in Europe?
Stefan Gries, Co-Manager of BlackRock Greater Europe Investment Trust, said: “Europe is home to some world-leading businesses that are often overlooked due to the attention given to overriding issues within the market in which they reside. We term these businesses ‘giants in niches’ as they dominate their respective end markets from their home in Europe.”
Stephen Macklow-Smith, Portfolio Manager of JPMorgan European Investment Trust, said: “It’s well documented that Europe has been at the mercy of low growth and an ageing population for some time. Many European companies have sought to solve this macro backdrop by focusing their attention on investing capital outside of Europe, in faster growing areas. The result? Many areas of the European stock market are seeing decent rates of revenue growth and profitability, in spite of a challenging backdrop for domestic growth. Europe also remains home to many global leaders.”
George Cooke, Lead Manager of Montanaro European Smaller Companies, said: “There is a huge amount of choice for investors in Europe, which is home to over 2,000 quoted smaller companies. Many are global market leaders, but identifying them in such a large pool can be challenging. There is little in the way of quality sell-side research. For investors with the patience and time to do their homework, however, discovering Europe’s small-cap ‘hidden gems’ can be rewarding. European small-cap companies have outperformed their large-cap counterparts by some 5.7% per annum since 2000.”