In this evening’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 squadrons of companies across Europe poised for victory.
Rising numbers of investors agree with them and are turning to Europe to grow their wealth. British investors ploughed £101million into European funds in May, following four months of outflows.
They are attracted by the signs of a strong bounce back in European economies following a tough pandemic.
Back of the net: Experts believe there are squadrons of companies across Europe poised for victory
Europe is also home to some world-class companies which look cheap in stock market terms when 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 stack up well against market leaders such as Pfizer in the United States,’ he says.
‘In consumer products, the likes of Nestle, Unilever and Danone compare favourably against US businesses such as Colgate-Palmolive and Procter & Gamble.’
So could a European investment fund prove a goal scorer in your investment portfolio?
WHY EUROPEAN FIRMS ARE POISED TO PROSPER
Economies worldwide are undergoing huge structural changes. For example, sustainability is increasingly the name of the game as more economies drive towards carbon net zero.
Ageing populations, smart technology and a growing global middle class are also trends set to define the next decade.
European companies are poised to benefit from these huge global shifts. They are equipped with the expertise, intellectual property and nous that will see increasing demand from across the world.
‘Suddenly, a lot of leading European companies are finding themselves able to supply what the world increasingly wants,’ says Edwards.
Niall Gallagher is head of the European equity team at GAM Investments and has specialised in the field for more than two decades. He is confident some of Europe’s ‘world-class businesses’ are set to excel over the next few years thanks to emerging demographic trends.
Among the most seismic changes is the growing middle class in Asia. ‘Around a billion more people in China, Indonesia, India and Vietnam are expected to join the global middle class over the next decade and will account for two thirds of middle-class consumers,’ says Gallagher.
These consumers, he adds, will be looking to enjoy – and display – their affluence with the purchase of high quality goods and brands with an international cachet.
‘Europe excels in high-end consumer brands and many are already well loved in Asia, particularly China,’ he says.
‘For example, in fashion we expect the popularity of brands such as LVMH and Moncler to flourish. French drinks brand Pernod Ricard and Swiss dental equipment specialist Straumann are also well placed.’
AHEAD OF THE CURVE IN SHIFT TO CLEAN ENERGY
Countries are racing to de-carbonise so that they can reduce the impact of climate change and hit net-zero targets.
But Europe in particular is ahead of the curve when it comes to developing the technology that will be needed. Demand for this expertise will only grow globally in the coming years.
‘As we’re shifting to cleaner energy, we’re going to need the infrastructure to convert from natural gas to hydrogen pipelines and invest in our electricity networks,’ says GAM’s Gallagher. ‘Europe is strong on industrial infrastructure and is well placed to benefit as countries make huge investments in this area.’
He mentions Italian cable manufacturer Prysmian as an example. It makes interconnectors that enable power to be brought onshore from offshore. Also, Spanish renewables company Acciona and German semi-conductor manufacturer Infineon.
Gallagher also says that Europe’s technology industry, often overshadowed by giants such as Alphabet and Amazon in the United States, should not be underestimated. He thinks Europe is producing some great technology companies.
It’s 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 Dutch company ASML, which produces equipment on which semi-conductor production is reliant. Semi-conductors will be key over the next decade, needed in everything from electric vehicles to smart devices and the latest electric appliances.
Tom O’Hara, a portfolio manager at asset manager Janus Henderson, highlights Acast, a Swedish podcast-hosting platform, as a promising European tech company. ‘If you’re a regular listener to podcasts then it is likely it is being piped to your device from Acast’s servers,’ he says. ‘They have a 70 per cent market share in the UK and are gaining traction in the US and other markets.’
He adds: ‘Global podcast market revenues are forecast to grow at 30 per cent a year, while Acast expects to grow its annual revenues at twice that rate.’
Europe is also showing its prowess in financial technology, adds Gallagher. He points to Fineco Bank, which he likens to an ‘Italian Hargreaves Lansdown’ – as well as Swedish payment company Klarna, which is currently the largest fintech company in Europe.
AGEING POPULATIONS ARE BOOST TO BIOTECHS
Europe’s strong biotech companies are the obvious winners as the populations of many developed countries grow older.
But for a left-field investment, Gallagher turns to Finnish lift and moving walkway maker Kone. ‘As populations age, we’ll want extra help to get up and down stairs easily, so Kone will likely benefit from this demographic shift,’ he says.
Investors looking for an income from their portfolio may find investing in Europe rewarding. That’s because European companies tend to pay higher dividends than their US counterparts.
‘Leading European companies will often pay out an annual income of around three per cent, whereas US companies pay more like one or two per cent,’ says Edwards.
FUND MAY HELP YOU PICK WINNING FIRMS
Picking individual European investment winners is not easy, so investors may find it is better to pick a European fund which holds a range of companies.
One sound option is to pick a fund which simply invests in Europe’s biggest 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 total 0.12 per cent.
Ben Yearsley, a director of Plymouth-based Shore Financial Planning, says there are some good European fund managers around, intent on seeking out future corporate success stories.
He mentions investment fund Fidelity European which has turned a £1,000 investment into £1,271 over the past three years.
He also likes trusts European Opportunities Trust, run by highly regarded investment manager Alexander Darwell at Devon Equity Management, and Montanaro European Smaller Companies. They have turned £1,000 into £1,012 and £2,051 respectively over three years.