“Elsewhere, there are fund management groups and specialist financials which also look quite attractive as Europe recovers, markets and confidence rise, and bad debts subside,” he adds.
Jeff Taylor, head of European equities at Invesco Perpetual, has identified interesting valuation opportunities in out-of-favour sectors at the value end of the spectrum, including energy, telecoms and financials.
“There are also sectors which we are currently avoiding – typically many of those which have attained ‘bond proxy’ status in recent years and to our minds have become very expensive as a result,” he notes.
“Consumer staples such as food and beverage stocks are cases in point. These are often companies with extremely strong and respectable track records – it is easy to understand their market image – but it’s important to remember that a good company does not necessarily make a good investment.”
Far and wide
Rather like emerging markets, Europe is not a homogeneous region.
Instead, it is made up of many countries at different stages of the economic cycle, and some with more opportunities for stockpickers than others.
For example, Spain’s economic recovery has been particularly strong but managers caution this does not necessarily translate into investable companies.
Mr Rutherford argues: “Apart from the recent issues with Catalonia in Spain, because Spain has been one of the fastest-growing counties in Europe, it doesn’t mean it’s a haven for stockpicking, because it’s not.
“When you break down their GDP growth you’ll see it’s predominantly tourist driven, which doesn’t affect the real economy really. Ok, it might affect some of the consumer areas in Spain but it doesn’t increase industrial output in Spain.”
Ritu Vohora, equity investment director at M&G Investments, admits: “The Spanish recovery has been noteworthy, with GDP growth back to pre-crises levels, an improvement in the labour market and continued reform of the banking system – but recent political uncertainty has tempered sentiment.”
Instead, Ms Vohora believes Eastern Europe looks particularly interesting and could provide some upside potential.
“These economies provide higher potential returns, with much stronger loan growth than peers, which means that the stock trades on a more attractive valuation, offering a healthy dividend yield and decent growth.
“A longer term theme that could also benefit peripheral Europe is China’s One Belt and Road initiative, which aims to boost economic development, investment, and cultural exchanges throughout Eurasia by funding port, rail, and road construction along routes linking China and Europe,” she says.