Advisers unfazed by eurozone debt

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Despite the debt crises in Greece, Ireland and Portugal, there is plenty of growth potential in other European countries - an opportunity British investors would do well not to overlook.

Adviser Fund Index (AFI) panellists remain upbeat on the outlook for European funds despite the extreme volatility of the underlying markets. Sovereign debt problems in Greece, Ireland and Portugal do not seem to have fazed advisers.

Darius McDermott, the managing director of Chelsea Financial Services, says he is confident that European equities will continue to perform strongly because of their low valuations and promising growth potential.

He says: “The fact that Europe has some very good companies which are producing strong growth means that this performance will likely continue. Europe is also very cheap at the moment.

“Choosing the right fund managers who are capable of finding good value is really important, and is key to enjoying this strong performance,” he adds. (AFI continues below)

Chelsea Financial uses the Schroder European Alpha Plus fund, managed by Leon Howard-Spink, for European exposure because the firm likes its “consistent track record”.

The fund is invested in equities throughout a wide range of European countries with France, Germany, the Netherlands and Switzerland making up the four largest geographical holdings.


It topped the table of the best performing AFI balanced portfolio funds over three months to April 20, ­followed by Jupiter European Income in second, and the Cazenove European fund in third.

Although remaining volatile, the IMA Europe Excluding UK sector has climbed since the trough of March 2009, which coincided with the Greek bail-out.

Fears over Ireland’s economy contributed to further volatility during late 2010, and another dip arrived in March 2011 when ­Portugal asked for a bail-out as well. Any further sovereign debt problems are likely to set back investor confidence in a similar way.

The latest monthly survey of global fund managers from Bank of America Merrill Lynch revealed that eurozone weightings fell between March, when there was a net 8% overweight position, and April, when the figure dropped to 5%.


Tim Cockerill, the head of fund research at Rowan, says that Europe is often overlooked by British investors, who are quick to lose confidence in the European market’s abilities.

He says: “From a British perspective, we always think that European companies are not as well managed or as ­stable as those in the UK. We actually do a lot of business with Europe, importing large amounts of cars and luxury goods - as do emerging markets. Europe should not be underestimated.

“These three-monthstatistics should be taken with a pinch of salt, but they do show encouraging signs. Over a calendar year, European equity funds do tend to perform well.”

Cockerill points to Germany and the Netherlands as countries which enjoy both market strength and long-term economic growth potential. He says both are home to numerous firms which are robust, well managed and have a high level of emerging markets exposure.

Many AFI panellists hold the Cazenove European fund, which has a consistent track record of strong performance. It was third in the table of top 10 performing AFI balanced portfolio funds over the last three months, returning 6.85% over the period.

Cazenove European has outperformed the IMA Europe excluding UK sector since Feb­ruary 2008.


The Adviser Fund Index series - a summary

The Adviser Fund Index series comprises an Aggressive, Balanced and Cautious index each tracking the performance of portfolio recommendations from a panel of 18 investment advisers. For each risk profile, all panellists specify a weighted portfolio of up to 10 funds from the authorised UK unit trust and Oeic universe that, when aggregated, define the constituents and weightings of the three AFIs.

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