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Navigating European Equities: Trends, Opportunities and Risks

Europe is an exciting place for potential investors because the region is home to an impressive number of innovative, world-class companies. These include pharmaceutical giants, leading financial houses, global car manufacturers, and the suppliers of luxury goods.

So, where should you start? Here we take an in-depth look at European equities and the investment funds focused on this fascinating area.

What are European equities?

These are companies that are traded on European stock exchanges, such as Euronext, a pan-European exchange based in Netherlands. These firms hail from countries across Europe, including France, Germany and Denmark, and operate in a wide variety of industries. Potential investors can already choose from a dizzying array of listed companies and more join their ranks via initial public offerings every year.

Europe’s biggest names

The largest listed companies in Europe have multi-billion dollar market capitalisations and customers spread around the globe. Novo Nordisk, the Danish pharmaceutical company, is currently the largest with a $534 billion valuation*. It’s followed by LVMH ($458bn*), the luxury goods supplier formed from the merger of Louis Vuitton and Moet Hennessy, and ASML ($378bn*), the Dutch chipmaker.

Why consider investing in Europe

  • It’s packed full of world class companies
  • European stocks remain lowly valued
  • Many leading fund managers focus on this region

Potential negatives of Europe

  • Concerns about European economies entering recession
  • Uncertainty remains in many markets
  • The region has underperformed in the past

Current views on Europe

So, how do the experts view European equities?

Inflation, interest rates, and geopolitics all make it difficult to formulate an accurate forecast, according to an outlook from Allianz Global Investors. Using analysts’ estimates as the best guide, companies in Europe will earn 6% more next year than in 2023,” it stated. It also pointed out that a number of sectors offered potential, including banks that remain cheap despite having had a good year in 2023**.

“The same applies to automotives, though the earnings trend here is declining,” it added. “Energy stocks are also cheaply valued compared to their historical levels, while technology and luxury stocks look rather expensive.”

Although European equity investors need to be on their guard this year, the region’s stock market valuations remain at very modest levels, according to Lazard Asset Management. “We believe the current economic gloom and insipid near-term outlook for Europe are already baked into share prices,” it stated in an update***. “Once markets have become more realistic about the near-term environment, there is still scope for European equities to make ground in 2024.”

After a decade of underperformance, there could be opportunities in European equity markets, according Goldman Sachs Research. While the European economy has its problems, Europes biggest companies pursue growth around the world – and that makes them pretty exciting,” she said****.

Is Europe right for you?

Europe really must be considered as part of a diversified global equity portfolio. There are too many fantastic companies in the region. While you can access these stories through buying the shares of individual Europe-based companies, a wiser option for many investors will be a fund.

The good news is there are plenty of star fund managers focused on this area. Here are five portfolios that could be worth an extra look.

Comgest Growth Europe ex UK

This is a high conviction fund that invests in quality, long-term growth companies. It’s co-managed by Alistair Wittet, Franz Weis and James Hanford. Its largest holdings include pharmaceutical giant Novo Nordisk and Accenture, the professional services company^. We like the fund’s well defined process, as well as Comgest’s structure and culture. This sees most of its staff, including those not in the investment teams, having a stake in the business.

GAM Star Continental European Equity

Large European companies – particularly those expected to grow faster than the index – are the focus for the GAM Star Continental European Equity fund. Its manager, Niall Gallagher, looks to buy stocks that are either out-of-favour or where growth prospects aren’t fully reflected in the share price. We believe his pragmatic approach and vast experience in European equities stands him in good stead for managing this fund.

Janus Henderson European Smaller Companies

This fund, which is managed by Ollie Beckett and Rory Stokes, is a pure small-cap vehicle which has a ‘style-agnostic’ approach to investing. This means the managers will search for growth companies at reasonable prices, while also considering neglected areas of the market. Due to the way it’s managed, as well as its excellent long-term performance, we would consider this a core holding for small-cap purists.

Jupiter European Smaller Companies

Another option for investors wanting exposure to smaller names, this fund looks to buy and hold high quality companies experiencing secular growth. The co-managers, Mark Heslop and Phil Macartney, focus on company fundamentals, while the macro-economic factors are largely ignored. The fund’s process is solid, while the team is small and nimble. In our view, this is definitely a fund to watch for the future.

BlackRock Global Unconstrained Equity

The final option is for investors that want exposure to Europe, but within a portfolio that also embraces other parts of the world. This fund, which is managed by the experienced Alistair Hibbert, is a concentrated, high-conviction portfolio that targets extraordinary companies within developed markets. The fund current has roughly a third of the portfolio in Europe^, including France, Netherlands, Denmark and Italy. ASML, Novo Nordisk and LVMH are among the most recognisable European names^.

*Source: Companies Market Cap, data at February 2024

**Source: Allianz Global Investors, 9 February 2024

***Source: Lazard Asset Management, January 2024

****Source: Goldman Sachs, 14 February 2024

^Source: fund factsheet, 31 January 2024

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.



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