In tonight’s Euro 2020 final, there can only be one winner: come on, England! But in the world of investing, European winners abound. Experts believe there are squads of companies across Europe ready for victory.
More and more investors agree and turn to Europe to increase their wealth. British investors put £101 million in European funds in May after four months of outflows.
They are attracted by the signs of a strong recovery in European economies after a severe pandemic.
Back of the net: Experts believe there are squads of companies across Europe ready for victory
Europe is also home to some world-class companies that look cheap in the stock market compared to their US counterparts. So says Nick Edwards, manager of investment fund Guinness European Equity Income.
“Healthcare companies Roche from Switzerland and Novo Nordisk from Denmark are doing well against market leaders like Pfizer in the United States,” he says.
“In consumer products, companies like Nestle, Unilever and Danone compare favorably with American companies like Colgate-Palmolive and Procter & Gamble.”
So could a European investment fund be a goalscorer in your investment portfolio?
WHY EUROPEAN COMPANIES ARE ABLE TO STAY
Economies worldwide are undergoing massive structural changes. For example, sustainability is increasingly the name of the game as more economies strive for carbon neutrality.
Aging, smart technology and a growing global middle class are also trends that will define the next decade.
European companies are poised to capitalize on these massive global shifts. They are equipped with the expertise, intellectual property and nous that will see an increasing demand from all over the world.
‘Suddenly many leading European companies are able to deliver what the world wants more and more,’ says Edwards.
Niall Gallagher heads the European equity team at GAM Investments and has specialized in the field for over two decades. He is convinced that some of Europe’s ‘world-class companies’ will excel in the coming years thanks to emerging demographic trends.
One of the most profound changes is the growing middle class in Asia. “Over the next decade, about a billion people in China, Indonesia, India and Vietnam are expected to join the global middle class and make up two-thirds of middle class consumers,” Gallagher said.
These consumers, he adds, will want to enjoy – and show off – their wealth by purchasing high-quality goods and brands with international cachet.
“Europe excels in high-end consumer brands and many are already well-liked in Asia, especially China,” he says.
‘In fashion, for example, we expect the popularity of brands such as LVMH and Moncler to flourish. The French drinks brand Pernod Ricard and the Swiss specialist in dental equipment Straumann are also in good hands.’
FORWARD THE CURVE IN SHIFT TO CLEAN ENERGY
Countries are rushing to go low-carbon so they can reduce the impact of climate change and achieve net-zero targets.
But Europe in particular is at the forefront when it comes to developing the technology that is needed. The demand for this expertise will only grow worldwide in the coming years.
“As we move to cleaner energy, we need the infrastructure to move from natural gas to hydrogen pipelines and invest in our power grids,” said GAM’s Gallagher. “Europe is strong in industrial infrastructure and well positioned to benefit from the huge investments countries are making in this area.”
He mentions the Italian cable manufacturer Prysmian as an example. It makes interconnectors that can be used to bring power from offshore to land. Also Spanish renewable energy company Acciona and German semiconductor manufacturer Infineon.
Gallagher also says the European tech industry, often overshadowed by giants like Alphabet and Amazon in the United States, should not be underestimated. He thinks Europe produces great technology companies.
THE FUND CAN HELP YOU CHOOSE WINNING COMPANIES
It is not easy to pick individual European investment winners, so investors may find it better to choose a European fund that houses a range of companies.
A good option is to choose a fund that simply invests in Europe’s largest listed companies. Vanguard FTSE Developed Europe ex-UK Equity Index is one such fund. It tracks an index of major European companies and has turned £1,000 into £1,303 in three years. The annual charges amount to 0.12 percent.
Ben Yearsley, director of Plymouth-based Shore Financial Planning, says there are a number of good European fund managers around, looking for future corporate success stories.
He mentions investment fund Fidelity European, which has turned an investment of £1,000 into £1,271 over the past three years.
He also likes trusts European Opportunities Trust, run by highly regarded investment manager Alexander Darwell of Devon Equity Management, and Montanaro European Smaller Companies. They have converted £1,000 into £1,012 and £2,051 respectively in three years.
It is a view shared by Guinness’s Edwards. He says: ‘The European technology sector is much smaller than its US counterpart, but in some areas it is world-class.’
He gives the example of the Dutch company ASML, which produces equipment on which the production of semiconductors depends. Semiconductors will be the key for the next decade, needed in everything from electric vehicles to smart devices and the latest electrical appliances.
Tom O’Hara, portfolio manager at asset manager Janus Henderson, highlights Acast, a Swedish podcast hosting platform, as a promising European technology company. “If you listen to podcasts regularly, it’s probably piped to your device from Acast’s servers,” he says. “They have a 70 percent market share in the UK and are gaining ground in the US and other markets.”
He adds, “The podcast market’s global revenues are expected to grow at 30 percent per year, while Acast expects annual revenues to grow at twice that rate.”
Europe is also showing its prowess in financial technology, Gallagher added. He points to Fineco Bank, which he likens to an ‘Italian Hargreaves Lansdown’ – and to the Swedish payment company Klarna, which is currently Europe’s largest fintech company.
AGING POPULATIONS ARE A BOOST FOR BIOTECHS
Europe’s strong biotech companies are the clear winners as the populations of many developed countries age.
But for a left-wing investment, Gallagher turns to Finnish elevator and moving walk maker Kone. “As the population ages, we want extra help getting up and down stairs with ease, so Kone will likely benefit from this demographic shift,” he says.
Investors looking for income from their portfolio may find investing in Europe worthwhile. That’s because European companies tend to pay higher dividends than their US counterparts.
‘Leading European companies often pay an annual income of about three percent, while American companies pay more one or two percent,’ says Edwards.
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