Strategy

Nothing compares to EU

Currently one of the financial world's most unloved regions, we look at the sectors that are unique to Europe and how the persistent pessimism has presented attractive opportunities…
William Sobczak
Last update 24 April 2019

As with most people, we are sick of discussing Brexit’s endless possible scenarios and how it might impact equity markets. The outlook is forever shifting, the large majority of “information” being pure conjecture.

Nevertheless, the political and economic backdrop means that Europe is now one of the most out of favour investment regions. In the open ended IA sector, Q3 and Q4 of last year saw total outflows of -£1.575bn in Europe, relative to the US and Global sectors which saw inflows of £289m and £114m respectively. Only the UK saw greater outflows. The discounts on closed-ended funds also suggest an out-of-favour asset class. As can be seen below, relative to both historical averages and global peers, European investment trusts are good value. In fact, Europe is even more out of favour than the UK, judging by discounts.

Being able to pick up exposures on wide discounts and supercharge returns as those discounts close is one of the most exciting benefits of investing in closed-ended funds, so the fact Europe is so out of favour should be piquing interest.

In our view there are good fundamental reasons to have exposure to Europe over the long run. Chief among these are the diversification benefits provided by the very different businesses that European stock markets provide relative to those available in the UK.

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Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.