Six Reasons to Consider Investing in Europe

05/06/2018

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Why might you invest in Europe?

At Henderson we believe the European market is a fertile hunting ground for investment opportunities. The market’s depth and breadth, with its regional variations and, at times, political uncertainty, means our fund managers have plenty of choice when it comes to picking stocks. Two of our investment trusts with a European focus include Henderson European Focus Trust, managed by John Bennett, Head of European Equities, and Henderson EuroTrust, managed by Tim Stevenson, Director of European Equities. Here we explore some of the factors that make the continent attractive.

1) The ECB’s continuing support

The euro area could claim only but a few fans a year ago. Investors fretted over deflation and depression, spurred, ironically, by the collapse in oil prices. What followed was a European Central Bank (ECB) showing willingness to explore extraordinary monetary policy measures, beginning a massive quantitative easing programme, initially involving monthly injections of €60 billion into the system and recently increasing to €80bn, through the purchasing of government and corporate debt with the aim of driving down interest rates, stimulating bank lending, getting the Eurozone economy moving again, boosting investment, creating jobs, and fighting off the spectre of deflation.

While not the saviour of Europe’s underlying structural problems, Europe’s markets appear set to benefit further from the ECB’s continuing loose monetary policies, with inflation well below the central bank’s target of 2% and QE likely ending in 2017, coming right at the point when the US and UK are on course to diverge and tighten theirs.

2) Currency weakness is helping all round

The ECB’s action has coincided with a substantial fall in the value of the euro. The chart demonstrates the Euro’s value against the dollar:

The value of the euro against the dollar remains low relative to history

Source: Thomson Reuters Datastream, as at 18 April 2015

This is a great stimulus for European exporters, whose products and services become cheaper and more competitive in overseas markets, boosting exports to the US and UK at the same time as insulating others against the downturn in emerging markets. Ultimately this should feed through to better sales and profits.

3) Low oil prices

A sustained period of low oil prices would be a major positive for most European economies, putting more money into the pockets of consumers, while also helping to reduce the region’s notoriously high energy costs – Europe is the world’s largest net importer of oil and related products (approximately $406 billion in 2014). There are concerns, however, that lower oil prices could fuel a deflationary trend, while falling oil prices have had a negative impact on oil producers and oil services companies based in Europe.

Falling oil prices - good for businesses and consumers, but possibly deflationary



Source: Datastream, Brent crude oil price, US dollars per barrel, as at 31 December 2015

4) Valuations remain relatively attractive when compared to the US

As mentioned, Eurozone stock markets have had a great run, and they’re certainly no longer as cheap as they’ve been in recent years. However, says Jason Hollands of broker Tilney Bestinvest, they remain “relatively attractive compared to US shares”.

Stock-picking remains key. The prodigious appetite for alternative income amid low yields and low interest rates, not-to-mention also quality stocks, means price ratios, a measure of how expensive stocks are relative to history, are being propelled ever higher. Rising share prices also mean fund managers need to be increasingly selective in building their portfolios – so it makes all the more sense to channel your money through a highly regarded European manager with a reputation for successful stock-picking.

Indeed, John Bennett, European fund manager at Henderson Global Investors, believes stock-picking is set to become all the more important in coming months.

“2016 has already seen a significant pick-up in volatility, so investors should brace themselves for difficult markets”, he says. “That is why I think stock picking is so important. By understanding a company’s strengths and weaknesses, we can seek to be better positioned than the general market both in good times and bad.”

5) Companies have reach beyond Europe

The global reach of European companies is evident in the breadth of their sources of revenue, with European-listed businesses deriving just over half of their revenues from overseas. This allows European fund managers to pick the companies with exposure to the regions with the most compelling opportunities – both domestic and global. It means that if the businesses are well managed ones – which our fund managers aim to pick – they can continue to outperform in falling as well as rising markets.

6) Companies are buying one another



Consider Merger and acquisition (M&A) activity picked up steadily in 2015 and has continued into 2016, with Europe registering its highest level of deal activity since the 2007/2008 financial crisis. CEOs tend to open-up their corporate wallets when they’re feeling more confident about the business environment or the economy or when finance is cheap. In Europe deal volumes have been boosted by a combination of low oil prices, the strong US dollar and optimism about Europe’s economic prospects - a positive sign.






Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.


Important information

Please read the following important information regarding funds related to this article.

Henderson European Focus Trust plc

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this trust.
  • The trust may have a particularly concentrated portfolio (low number of holdings) relative to its investment universe and an adverse event impacting only a small number of holdings can create significant volatility or losses for the trust.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • If a trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • The return on your investment is directly related to the prevailing market price of the trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Where the trust invests in assets which are denominated in currencies other than the base currency then currency exchange rate movements may cause the value of investments to fall as well as rise.
  • The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.

Risk rating

Henderson EuroTrust plc

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this trust.
  • The trust may have a particularly concentrated portfolio (low number of holdings) relative to its investment universe and an adverse event impacting only a small number of holdings can create significant volatility or losses for the trust.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • If a trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • The return on your investment is directly related to the prevailing market price of the trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Where the trust invests in assets which are denominated in currencies other than the base currency then currency exchange rate movements may cause the value of investments to fall as well as rise.
  • The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.

Risk rating

TR European Growth Trust PLC

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Specific risks

  • Active management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This trust is suitable to be used as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this trust.
  • The trust could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the trust.
  • If a trust's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio diversified across more countries.
  • Derivatives use exposes the trust to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • The return on your investment is directly related to the prevailing market price of the trust’s shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the trust. As a result losses (or gains) may be higher or lower than those of the trust’s assets.
  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • Where the trust invests in assets which are denominated in currencies other than the base currency then currency exchange rate movements may cause the value of investments to fall as well as rise.
  • The trust may use gearing as part of its investment strategy. If the trust utilises its ability to gear, the profits and losses incured by the trust can be greater than those of a trust that does not use gearing.
  • If the trust seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Most of the investments in this portfolio are in smaller companies shares. They may be more difficult to buy and sell and their share price may fluctuate more than that of larger companies.

Risk rating

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