Is now the time to buy back into Europe?

Europe poses a new opportunity. Deterioration has halted and although the troubles are not over, the region is showing signs of steady improvement, and no longer should it be viewed as a threat, Tim Stevenson, fund manager of Henderson EuroTrust, says.

Wednesday, October 24th 2012, 6:00AM

To take advantage of the opportunity, Henderson EuroTrust manager, Tim Stevenson is prepared to increase the level of gearing in the trust to a higher level to top up holdings during market dips.

Although PMIs in Europe are still weak governments are increasingly keen to emphasis pro-growth policies. A more accommodative, growth-oriented stance would provide a much more investor-friendly environment in which to take advantage of the many opportunities in Europe. Though there are tentative signs that sentiment is improving towards Europe, it remains depressed and investors run the risk of missing out as value is gradually recognised.

Tim Stevenson explains: “Europe continues to be besieged by the conflict between macro and micro issues – the uncertain political environment versus the good value many European companies offer. It’s important to remember that many companies currently look in great shape and are on attractive valuations, providing plenty of opportunity for investments. The time for Europe is now.”

He continues: “Equity valuations across Europe are similar to those three decades ago and yet companies are now far better managed. There are plenty of quality companies, led by reliable management, that are financially stronger than most European governments and which are rewarding shareholders. What’s more, payout ratios are on the up and those that had not previously issued a dividend, are starting to do so.”

Henderson has seen a pick up in international investor interest in Europe of late but more important still has been a noticeable increase in the participation of the domestic investor; a trend Henderson’s fund managers believe will be sustained for years not just months. Historically European domestic investors have traditionally favoured bonds over equity markets but with equities now yielding substantially more than government bonds, this long-term bias is changing.

Tim Stevenson concludes: “We cannot wait until Europe returns to a more normal situation; we need to take advantage of its new reality and find companies that can flourish in this low growth world. We need to start viewing the situation in Europe as an opportunity, not a threat.”

- Tim Stevenson is a fund manager of Henderson EuroTrust plc

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