For want of stating the obvious, Europe is an interesting investment conundrum right now.
Last month marked the start of that new phase of its ¤80bn (£68bn) monthly buying spree. By adding corporate bonds to its buy list of government, agency and covered bonds, as well as asset-backed securities, the central bank has moved firmly into the realm of credit easing.
This move reaffirmed the ECB’s promise to do “whatever it takes” and, as we know, this type of quantitative easing is positive for risk assets. But Brexit has rather put a spanner in the works.
There’s now a question mark over firms that have a significant amount of trade with the UK. Perhaps more significantly, there is the worry of Brexit contagion and an eventual break-up of the EU and common currency. Political risk has risen in every European country.
Growth, which had been recovering, is likely to slow. Dividend yields will act as a support to some extent, but confidence will have taken a real knock.
Uncertain times to say the least, and we can expect volatility and some big divergences in market performance in the coming months. That said, opportunities will present themselves and investors should still have part of their core portfolio invested in European equities.
Good companies haven’t suddenly become bad companies and there are some world leaders based in the continent that are not dependent on the UK.
With all this in mind, the Henderson European Focus fund is worth a look. It’s a more concentrated version of the Henderson European Selected Opportunities vehicle (which I also like), with 30-40 holdings that are weighted by conviction.
The process is governed by early identification of industry or sector themes that will still be around a decade from now. This allows manager John Bennett to ignore the macro-driven fear or optimism that fills newspapers and focus on what matters – real or absolute value.
In addition, a focus on ‘investing in change’ is the mechanism through which Mr Bennett and his team invest early enough to maximise potential upside. And if there was ever a time when change is taking place, now seems to be it. In the post-Brexit world, these points will resonate with, and hopefully reassure, many worried investors.
The manager believes that inefficiencies persist across European markets as a whole, due to the diverse local, regional, industry and global supply and demand drivers, which exert uneven pressures on the various markets. By taking a thematic approach to focus on these drivers, he and his team can uncover pockets of opportunity – across all market conditions.
SOURCE: FT Adviser
