How to invest in European funds

When investors think of putting their money into Europe, they may still be hesitant. Managers are in agreement, however, that there are still plenty of opportunities to be found.

For example, James Sym, manager of the Cazenove European Income fund, says Europe is “still outstandingly cheap” – almost as cheap as it was in 2009. His fund, which launched in May 2012, was launched at a time when countries such as Greece and Ireland were “unsustainable”.

But what do you need to think about when investing in the continent?

Article continues after advert

1. Decide if you want exposure to core or peripheral Europe. Some investors may still be cautious about accessing some peripheral European countries such as Spain and Portugal, but Mr Sym says there are many opportunities in such areas. In fact, within his fund, the biggest underweight is Germany and the biggest overweight is Spain. He says that people do not expect growth in outlying countries. “I would expect the periphery to grow more than core countries because they are so depressed at the moment,” he adds.

2. Look at what currency the fund is denominated in. While it might not make much of a difference, some funds that are euro-denominated may work out to be more expensive. The fund will be run the same way, although any market movements between the euro, pound or other European currencies may affect an investment.

3. Be aware of the opportunities. Don’t be put off Europe as a whole straight away. Some defensive companies such as Nestle have been growing over the past few years and been a good investment. There are also opportunities in countries like Spain. The Spanish economy has been helped by clothing giant Inditex, which owns Zara.

4. Do you want an ex-UK fund? There are two types of European fund – Europe including UK and Europe excluding UK. Some investors may prefer to have a small exposure to the UK for greater diversification, although this can always be done separately.

5. Always look at the fund’s strategy. It is important to always read the fund’s strategy before investing to get a real idea as to what route the fund manager will take. Every fund has a different approach and will have access to different countries that you may not want in your portfolio.

More top tips from Money Management

Dealing with auto-enrolment pension providers

Five points to consider for investing ethically

Top tips for investing in emerging market debt