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Why Invest In Europe?

Amidst the turmoil of Europe, James Budden looks at the case for investing in the region and the current position of the Baillie Gifford European Fund

News stories about Europe appear relentlessly negative and, unsurprisingly, European stock markets have suffered from increased volatility as a result. Given the greater market uncertainty and the unremitting gloom, it is understandable that no-one would wish to invest in such an environment without seeking to establish the extent of the inherent risks. However, in weighing up prospects for European equities, it would be wrong to be guided only by what we see or hear in the media. Before analysing individual economies or companies, closer investigation of the overall situation should reveal that much of the negative sentiment is unjustified. The first point worthy of note is that Europe is not the Eurozone. As such, headlines about economic woes in Greece or strife between members of the single currency area have little or no impact on large parts of the European economy.

There is no question that the eight years since the global financial crisis have been a fascinating time to be a European investor and, indeed, a period that has yielded significant returns for those who have focused on stock-picking. And, there is little doubt that having a top-down view rather than a bottom-up one would have led to a very different approach to the task of investing clients’ money and, of course, a very different outcome. The top-down view is what we see in newspaper headlines or hear on news bulletins and will often provoke questions – What is going to happen to Greece’s debt? What impact will quantitative easing have on European banks? Where is the oil price going? What about the Swiss franc? All of this adds to the negative image of a Europe that is stumbling from one crisis to the next under the burden of weak leadership, ineffective political structures, high debt and challenging demographics. In truth, that would be a fairly accurate assessment, although similar observations would be just as relevant for the US or indeed the UK. The point is that they don’t really matter, and it is much more important to seek out individual companies that are best-placed to grow rather than focus on what is happening in specific regions or countries.

So it should come as no surprise that the view of the Baillie Gifford European Fund from the bottom up is quite different from the top down vista. We see a range of companies that are growing, profitable and cheap. Many are financially strong, outward looking, entrepreneurial, well managed and blessed with long term investment horizons that match our own. Examples include the Swedish bank Svenska Handelsbanken, the Spanish discount store Dia and some people’s favourite airline Ryanair. The Fund has a particular penchant for Holding Companies which have some sort of involvement from a founding family such as the Wallenburg’s Investor AB which has interests in many of Scandinavia’s top firms. The portfolio has a strong emphasis on quality and sustainability of earnings. As a result the Baillie Gifford European Fund may lag a rising market in the short term but over the longer term we would expect the Fund to reward its investors for their patience.

Cumulative Performance to 30 April 2015

 

3 years

5 years

10 years

Baillie Gifford European Fund A Acc

53.3%

62.3%

174.8%

MSCI Europe ex UK Index

54.7%

43.3%

119.9%

Source FE, share price, total return

Contents

Why Invest In Europe?
Amidst the turmoil of Europe, James Budden looks at the case for investing in the region and the current position of the Baillie Gifford European Fund

The Interview: The Global Equity Income team
Alex Crooke, Head of Global Equity Income, along with fund managers Ben Lofthouse and Andrew Jones, survey the international landscape in a bid to unearth stocks offering both an attractive income and the potential for capital growth.

Preparing for the New Market Leaders
As the equity bull market enters its seventh year, the global economy nears several inflection points and new equity market leaders will likely emerge.

Schroders Global Investment Trends Survey 2015
In the Schroders Global Investment Trends Survey 2015 we have captured retail investor confidence, opinions and investment intentions from a comprehensive survey of over 20,000 investors in 28 countries around the globe.

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