Europe is packed full of world class companies – but where are the fund managers focused on this region finding the most attractive opportunities? We examined a number of portfolios in the Europe ex-UK sector to identify which industries boasted the largest share of assets under management.
Here we take a look at some of the most popular sectors and highlight the funds worth considering for access to these areas.
There is certainly no shortage of companies around the globe in which you can buy shares. In fact, there are currently almost 60,000, according to the World Federation of Exchanges*. Around 25% of these companies are from the EMEA region (Europe, Middle East and Africa) and some of the fastest growing stock exchanges have come from our nearest continent*.
Of course, no two businesses are exactly the same, even if they are competing for similar customers. Each one will have its own aims, priorities, and ways of working. The Global Industry Classification Standard (GICS) divides these firms into 11 broad categories, according to Fidelity’s guide to classifying the world’s businesses. These are: Energy; Materials; Industrials; Consumer discretionary; Consumer staples; Healthcare; Financials; Real estate; Information technology; Communication services; and Utilities.
So, which are currently the most popular industry sectors with the managers of European funds?
This is a relatively broad sector that consists of businesses involved in the manufacture and distribution of capital goods, as well as transportation services. It can also feature those providing commercial services, meaning it will include defence contractors, airlines and construction firms.
The industrials sector accounts for 23% of the Janus Henderson European Selected Opportunities fund**. We like the pragmatic approach of the fund’s manager, John Bennett, and the fact he takes the macroeconomic environment and sector trends into consideration. His aim is to provide a long term return – classified as being at least five years – from a combination of capital growth and income. Its 10 largest holdings include Airbus, a pioneer in designing and manufacturing aerospace products and services to a global customer base**.
Banks, mortgage providers, investment managers, insurers, and financial services providers can all be found within this sector. Their services are crucial for individuals and businesses around the world, which is why these industries are a significant part of most European funds.
For example, the financials sector accounts for just over a fifth of assets under management in the Liontrust European Dynamic fund***. Currently, the largest individual stock holding of 5.1% is in Bank of Ireland Group, which is a diversified financial services business***.
This is a concentrated fund of around 30 to 40 holdings, with the management team regarding cash flow as the single most important factor in shareholder return. The fund also benefits from having a flexible investment style. This gives it the ability to rotate towards value or growth, depending on where the most opportunities can be found.
This is another broad area and contains a wide variety of commodity-related manufacturing companies. You can expect to find companies making everything from paper to steel, as well as those involved in the mining of various commodities.
Materials has the largest industry weighting** in Rob Burnett’s LF Lightman European fund, which aims to provide long term capital growth. One of its 10 largest stock positions is in Antofagasta, the Chile-based copper mining group that also has interests in transport**.
This is a genuine European value fund - a rare breed in this day and age, as there are not many value funds left. The manager is highly experienced and, for investors who can stomach the potential volatility, this could be a great option, especially if they are looking to balance out their style exposure elsewhere within their portfolio.
This has been one of the fastest growing areas in recent years and includes businesses involved in making computers and software. However, it also includes firms that make crucial components, such as semiconductors, that are used in the construction of these products.
Its global importance means the sector is represented in many portfolios. In fact, it has the largest industry weighting of 26.7% in the FTF Martin Currie European Unconstrained fund**. The fund’s largest stock position of 9.5% is currently ASML, a leading name in the semiconductor industry**.
We like the concentrated, unconstrained nature of this fund. Its manager, Zehrid Osmani, prefers to avoid short term noise and focus on a five to 10 year time horizon. He has considerable experience of investing in this way and a strong track record from his days managing similar funds at BlackRock.
This sector can be broadly split into two, with both sides tending to be very sensitive to economic cycles. The sector contains a wide variety of businesses, including hotels, restaurants, leisure facilities, automotive manufacturing, and household durable goods.
Companies falling into the consumer discretionary camp often demand places in portfolios and the GAM Star Continental European Equity is no exception. Its largest holdings include the likes of drinks company Pernod Ricard and luxury goods provider LVMH Moet Hennessy Louis Vuitton**.
We believe that Niall Gallagher’s pragmatic approach and vast experience in European equities stands him in good stead for managing this fund. His team looks to buy stocks at the point where they are either out-of-favour or where growth prospects aren’t fully reflected in the share price.
*Source: World Federation of Exchanges, Number of listed companies, May 2022
**Source: fund factsheet, 31 July 2023
***Source: fund factsheet, 30 June 2023
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.