With the World Cup underway, pundits have been tipping many European teams such as Germany, Belgium, France and Spain as favourites, whilst expectations for the UK’s only qualifier - England – are much more modest. Here, we take a look at how this dominance of European teams mirrors the current investment landscape.
The Europe ex. UK market has begun to prosper of late. Between April 2016 to April 2017, just three funds from the IA Europe ex. UK sector featured in the top 100 most researched funds from the Investment Association Universe; Jupiter European, Blackrock European Dynamic and Blackrock Continental European Income.
However, that figure had more than doubled between April 2017 and April 2018 (from three to seven), suggesting that the sector is becoming more attractive to investors.
Much like the top football players, FE data ranks the top 20 ‘players’ from the IA Europe ex. UK sector in order of money (£m) flowing into funds for the last year.
The net inflow for this sector over the last year was £4964m. Compared with the IA UK Equity Income sector for instance, the difference is stark, with a net inflow of £-909m. This is reflected in the amount of inflows bookmakers are receiving from bets being placed on potential European World Cup winners. Not so many are being placed on England.
Tanvi Kandlur, fund analyst says: “Following the financial crisis of 2008, European markets struggled, with each European country having its own particular economic disasters to deal with. 2017 was somewhat of a turning point. General elections across Europe gave confidence to consumers and businesses, particularly that of Emmanuel Macron in France.
“Since then, Europe’s economy has gained momentum. European earnings finally showed growth in 2017 and corporate profit margins are also around 30% below their 2006 levels so there is room for expansion. Meanwhile productivity of corporates is improving after multiple years of weakness which provides reassurance that profit expansion can continue.”
Performance justifies the switch
FE data shows that investment in the Europe ex. UK market has paid off for investors. The chart below shows the performance of the IA Europe ex. UK sector compared to the UK Equity Income and UK All Companies sectors over the past three years.
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Charles Younes, research manager at FE states: “The last decade has been a tumultuous one for both European and UK markets for a number of reasons. There has been a shift of money towards the Europe ex. UK market and there is still room to expand. Interestingly, the problems of the last 10 years or so were triggered by financial factors. However, the improvement in European markets and distinction between the UK and Europe for the first time by global investors, have been brought about by political issues.
“What is also interesting to see is how the success of the European ex UK markets reflects in the dominance of European teams going into this year’s World Cup and lack of expectation for the English team. We shall see in July whether their dominance is rewarded with a trophy for one of the European representatives.”
For more information about the individual ‘players’, please contact the FE press team at [email protected].
