Exchange-traded fund provider Source has shifted its multi-asset portfolio in favour of European equities, despite wavering confidence in the region in light of recent poor performance.
The Source Multi-Asset Portfolio now holds a maximum overweight position to the eurozone after its research team decided to pull away from the US market.
Andras Vig, director at Source, said the eurozone economy is “still accelerating”, pointing to the attractive valuations in the region, particularly compared to US equities, which he said have become too expensive.
He said the prevailing market sentiment is negative towards Europe, which has offset decent dividend income and growth.
Despite the “pockets of risk” in Europe, such as banks, Mr Vig claimed the negative sentiment towards the region is not justified.
“Although some of the uncertainty will remain, there is enough growth to support equities in the region,” he said, adding the company has softened its negative stance on European oil and gas, upgrading it to neutral.
“While we remain more positive on equities in Europe than the US, we still expect steady economic growth in both regions, although the UK might experience a mild recession.”
Mr Vig said Source remains neutral on the UK given the recent Brexit-induced uncertainty.
The provider has also opted for more defensive US allocations, with an upgrade to healthcare and a downgrade to retail, in both cases shifting sector positions to neutral.
Europe is fairly stagnant and will undoubtedly be a big loser from an eventual Brexit Ben YearsleyBen Yearsley, investment director at the Wealth Club, agreed negative sentiment towards Europe had meant the region now looked better value compared to the US, which he said was now looking “toppy”.
But he said there were a couple of things to bear in mind, pointing to the US trading at a premium to other global equities, which he said was possibly because of the amount of world leading companies it has under its belt.
“The US economy is on a different trajectory than Europe at the moment,” Mr Yearsley said, pointing to the “solid” GDP growth in the US, falling jobless numbers, and positive profits.
“Compare that to Europe, which is still fairly stagnant and will undoubtedly be a big loser from an eventual Brexit as the UK accounts for so much trade.
“However, I do like buying into areas that are overlooked and unloved, and currently Europe is one of those areas.”
Mr Yearsley also said, from a stock market and a currency perspective, UK investors have done very well out of the US over the last year or so, meaning a spot of profit taking is “inevitable and prudent”.
katherine.denham@ft.com
