Views towards Europe are divided across every level of the UK, including the investment world. Sadly, a lot of this is to do with a lack of knowledge or understanding about the available opportunities in the region, or possibly how to invest. Picking a single stock may not be as rewarding as hoped, but it is worth keeping in mind that there is more to Europe than Nestlé and Volkswagen.
Europe is a mature economy, and faces issues of demographics, which opens up some potentially significant investment opportunities. Think of the growing demand for healthcare provision or those companies that can help individuals to save for their retirement at a time when governments are forcing us all to take on more personal responsibility. Amundi is one of the biggest investment companies in the world, yet it is does not get recognition of this in the UK.
On politics, Europe is slowly learning, unlike the UK perhaps, that the scope for radically different economic policies is limited by the strength of domestic finances and levels of outstanding debt. Adopting the euro as a single currency has been painful for some countries, but the discipline imposed by removing the short term fix of devaluation has forced through significant changes in Spain, Portugal and Ireland, all of whom are now seeing the benefits of that early work. Political noise has, however, distracted attention away from the achievements of companies across the region.
World leaders with a long-term strategy
Europe is home to many world-leading businesses, from logistics and express delivery firms, such as DHL, to leading airline IT provider Amadeus. A significant number of companies globally have been using SAP management systems for decades. Look at true luxury names such as Hermes, or the brand strength of L’Oreal.
Criticisms of those European companies earning less than their global peers is often misguided, as European companies will frequently choose to invest in longer-term projects rather than looking nervously over their shoulders as shareholders demand more. Europeans tend to be much longer term in their approach, rather than selling immediately to the next highest bidder and making a quick buck. Share buybacks are becoming more frequent in Europe than they were 30 years ago, but this has not been the primary driver of earnings-per-share (EPS) growth; an accusation that can be levelled at other markets.
For those investors concerned by the UK leaving the EU, this may be a good time to look around and see how many European companies are ever-present in our daily lives, and whether they are accessible as an investment. Europe offers a range of potential strategies that may interest investors, and a fund that invests solely in Europe to the exclusion of the UK may be a suitable choice, given the general fear and loathing towards all things European that is sadly so prevalent in the UK today. For our pan-European strategy, we remain significantly underweight UK equities, reflecting the uncertainty around Brexit, and the Brexit process.