It may not have been at the forefront of an investor’s mind over the past four years, but European funds seem to be taking a turn for the better. This week, we look at five steps to take when considering a European fund.
1. Look at the fund’s eurozone exposure. Some investors may not want a large amount of exposure to troubled eurozone countries. Watch out for large exposure to countries such as Italy, Greece and Spain.
2. Think about the market cap. Most fund managers will have a preference for which market cap they invest in. While large-caps are deemed safer, small-caps have better growth potential, although it may come with some risk.
3. Decide what route to take. There are different ways to invest in European funds: unit trusts, investment trusts or trackers. Investors will vary on which they prefer and some may prefer to be in a unit trust as it is not a listed company.
4. Find out in which currency the fund is denominated. While the denomination should not make much difference initially, any significant market movements between the pound and euro can affect overall returns. Check if the fund is euro- or sterling-denominated before investing.
5. Ask about the fund’s strategy. Always look at what the fund is aiming to achieve. Every strategy is different, but make note of whether a fund manager is willing to take more risk when it comes to eurozone countries. It could turn out to be a more volatile investment than expected.
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