Three ways to add European exposure to your portfolio

Europe is a fascinating region that’s home to global multinational businesses, bustling economies and a variety of remarkable cultures. It’s also in a state of flux, with many commentators suggesting that 2025 could be a challenging year due to a number of economic headwinds. However, it’s important to remember that investors overlook a region of this size at their peril, while gloomy predictions could result in an upside surprise this year.

As far as UK investors are concerned, Europe remains popular due to the sheer number of exciting companies in a variety of sectors that call it home. So, what’s the best way to get access to this region? Here we look at three investment funds that each provide a different type of exposure.

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser

Core holding

The first option is finding a fund that can form a central part of your investment portfolio and (hopefully) deliver reliable returns in a pretty stress-free way. One suggestion for this slot is Fidelity European, which focuses on finding attractively-valued companies that exhibit good long-term structural growth prospects.

It looks for four main characteristics: positive fundamentals, proven business models, the ability to generate cash, and an attractive valuation. We like this bottom-up stock picking approach and the fact its lead manager, Sam Morse, boasts more than three decades of industry experience. He took over the fund back in January 2010.

The fund is also pretty broadly diversified in terms of both country and sector exposure. France has a 28% share, followed by Switzerland with 19% and Germany on 12%*. Other countries in the portfolio include the Netherlands, Denmark, Sweden, Finland and the UK.

Growth with flexibility

Next up is a growth fund that comes with in-built flexibility. The Liontrust European Dynamic fund can rotate towards value or growth, depending on where the managers see the most opportunity. We like the management of this fund, as well as its rigorous process and the collaborative approach that has helped it achieve stellar long-term returns.

The fund has been managed since its launch in 2006 by James Inglis-Jones and he was joined six years later by Samantha Gleave. Their aim is to deliver capital growth over the long term by focusing on a forensic analysis of historic cash flows and balance sheet development in company annual reports.

The managers take a concentrated approach – by holding around 30 to 40 holdings – and believe that cash flow is the single most important determinant of shareholder return. Currently, the fund has roughly 60% of assets in large-cap names, 32% in mid-caps and 4.5% in small-caps**.

Exposure to minnows

Investing in Europe isn’t just about large multinationals. There are plenty of exciting smaller companies that often fly under the radar. One of the main benefits of investing in such stocks is that they’re not followed so closely by analysts and are often capable of strong growth. This means they may surprise on the upside.

One fund that offers more access to these stocks is the IFSL Marlborough European Special Situations fund, managed by David Walton, who has been managing this fund for more than a decade. He looks for undervalued stocks with above-average growth potential and strong management teams. Its top holdings are companies with which the majority of UK-based investors are unlikely to be familiar. For example, the largest position is in GR Sarantis, a Greek consumer goods firm**.

We consider the team behind this fund to be experts in small-cap investing and have been impressed by its ability to build a stellar track record in this space.

*Source: fund factsheet, 31 January 2025
**Source: fund factsheet, 31 December 2024

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.