Europe is moving back into favour

This article is part of
Investment Trusts - May 2014

But with a rather unexpected recovery in Europe in the past year and a less than impressive performance from emerging markets over the same period, where should investors be putting their money?

The top 20 most-viewed investment trusts in the first quarter of 2014 as reported by the Association of Investment Companies (AIC) reveal that the Global and UK sectors remain popular.

Murray International and Scottish Mortgage, both of which sit in the Global sector, remain the first and second most-viewed companies on the AIC site in the period for the second year running. But the AIC observes that Asia Pacific and Emerging Markets companies joined the top 20 this year.

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James de Sausmarez, director and head of investment trusts at Henderson Global Investors, says: “We have obviously been seeing inflows into the UK because that’s part of the income story. But the other key area where we’ve been seeing flows is into Europe because I think lots of investors, professional and private, have been underweight Europe in the past five years.

“With confidence returning to markets and the economies, I think a lot of investors have decided they want to be back invested in Europe.”

Mr de Sausmarez believes it’s a trend that is likely to continue as investors’ increased confidence in the region plays out.

Tim Mitchell, head of investment trust sales at JPMorgan Asset Management, agrees that Europe has become a popular region in terms of investment trust inflows.

“Given the emerging economic stability appearing more broadly across the continent – including the previously struggling economies of Portugal, Ireland, Italy, Greece and Spain (the ‘PIIGS’) – investors are increasingly looking to capture a recovery in the region, following a long period of under-allocation to the region, investing in both small and large-cap based investment trusts.”

He adds that one area seeing renewed interest is the emerging markets and suggests wealth managers are researching funds ahead of any decision to re-enter the region.

Mr Mitchell adds: “Discounts are reasonably wide at present yet gearing is being held at low levels or not being utilised given the current volatility in the region.”

For Mr de Sausmarez, the move out of emerging markets and Asia was “slightly overdone” and is likely to turn. He observes: “That’s been the area of the world that’s out of favour. It’s been developed markets that have been more attractive in the past 12 months than emerging markets.”

Whether the tide will turn remains to be seen but for now it seems to be a story of two regions.

Ellie Duncan is deputy features editor at Investment Adviser



Managed by Michael Gomez, this $5.3bn (£3.1bn) offering is one of the largest in the sector and also one of the most consistent performers, possibly because of its flexibility in being able to hold both hard and local currency denominated instruments. It is currently ranked top three in the sector across one, three, five and 10 years, and although its one-year performance is a negative 3.05 per cent, its year-to-date return of 5.33 per cent keeps it within the top three funds.