Grab a piece of Europe’s action

JUDGING by the feuding between politicians and bankers across mainland Europe as to how to resolve the eurozone debt crisis, investors might feel like opting out. Yet they could be missing some of the global success stories of the decade.

Austerity measures in Greece, followed by Italy, Spain and Portugal, have yet to be fully implemented, with Greece notably resisting cutting its bloated public sector by 1.5 per cent – around £3 billion. Household debt in the eurozone is lower than the UK. Here it has reached 98 per cent of GDP, which is well above Germany (60 per cent), France (48 per cent) and Italy (45 per cent).

German Chancellor Angela Merkel continues to support the peripheral members of the euro, while stressing at Davos last month that the fundamental causes that brought the near collapse of the Western banking system have still not been addressed.

The loans offered by the European Central Bank – particularly three-year ones to banks facing a credit crisis – appear to have stabilised the position. This is so-called quantitative easing by the back door. It should help the refinancing of sovereign debt this quarter.

Confidence has been knocked. Europe did see some growth last year, albeit just 1.6 per cent according to the World Bank. Many businesses have postponed expansion plans, yet often sit on the highest cash reserves for a generation.

John Muirfield, chartered financial planner at Edinburgh-based Muirfield Partnership, feels that this offers a buying opportunity both in the short and long term. For the former, he says to invest in those funds which employ strategies to achieve gains even in downward markets. He also suggests holding securities whose earnings are in US dollars, which should do well as the euro weakens, tipping the Legal & General European Absolute Fund.

“Stick to tried and tested fund managers who invest in blue chips,” says Alex MacLean of Aspire Wealth Management in Edinburgh. He likes Henderson European Select Opportunities, which was originally under Gartmore management before being taken over by Henderson. MacLean says fund manager Roger Guy and his successor John Bennett have shown sound judgment.

Scott Mackintosh, director at Edinburgh Investment Consultants, says that “during adversity there will be opportunity”. His firm watches European markets with caution, seeking funds that have realigned themselves for a recovery phase.

They favour Jupiter European whose fund manager, Alexander Darwell, personally investigates opportunities with sustainable profit and growth margins. The fund consistently outperforms its peer group.

According to research conducted by Lipper on behalf of Scotland on Sunday, Jupiter European was the top performer over the last 10 years with 150.7 per cent growth, while the sector average was 57.7 per cent. It is also the third best achiever over five years, with 35.7 per cent growth in a sector which fell 3.37 per cent on average.

By comparison, avoid Newton Continental, says Gavin Scott at EIC. He says it has underperformed its benchmark index over the last three years. The constraints placed on the team, focusing heavily on global themes, has been its undoing.

There are global companies based in mainland Europe which stand out as splendid long-term investments. Many have a track record of growing their annual returns over decades. Often they provide goods and services which consumers regard as essential, enabling them to thrive, whatever the economic weather.

Described by most as blue chips, Warren Buffett calls such firms “inevitables”. The likes of Unilever and Nestle are good examples. Check where funds are investing, both by company and location. This may, for instance, not be the time to have more than a small holding in emerging Europe, such as the Baltic states or eastern Europe.

Roland Oliver at Oliver Asset Management in Musselburgh prefers “passive investing” by going for funds with exposure to all markets, rather than selecting particular countries or continents. In this way, investors enjoy a fair geographical slice in relation to all stock markets.

Willie Crockett, managing director at Edinburgh Risk Management, says the firm’s view is to be underweight in Europe. He says: “The Greek situation is a major concern still. It is likely to come to a climax in late February and we will continue to review our stance in the light of this.”

He has scaled European holdings “right back” for cautious investors. For more growth-orientated clients who wish to take a little more risk, his firm favours four funds: Cazenove European, Henderson European Special Situations, Schroder European Alpha and Jupiter European Opportunities.

In star funds over 10 years, apart from Jupiter European, consider CF Odey Continental European (up 140.3 per cent), Jupiter European Special Situations (a rise of 137.8 per cent) and Henderson European Growth (up 134.9 per cent), according to Lipper.

Taking a five-year view, outstanding performance has been achieved by FF&P European All Cap Equity (up 61.3 per cent), BlackRock European Dynamic (growth of 38.1 per cent) and BlackRock Continental European Inc (up 23.2 per cent).

To gain tax efficiency, try to place holdings either in an Individual Savings Account (ISA) or self-invested personal pension (SIPP). Children can take advantage of such funds through either a Child Trust Fund or the Junior ISA, which launched last autumn. For a baby starting the latter now with up to £3,600 allowed to be sheltered, the ups and down of European stock markets should have produced a sizeable sum for their 18th birthday.