Is this an entry point for distressed euro assets?

The European sovereign debt issue has been bubbling along for some time now. But it came to the fore during the summer as the lack of decisive intervention from politicians and central banks spooked the market.

Equity markets have rallied since their lows as the market seems to have taken the view that a solution will eventually be found, but they remain significantly below their peaks of early summer. Each round of talks raises hopes of a definitive solution and the focus is now firmly placed on the G20 summit at the beginning of November.

In recent weeks we have met with a number of European fund managers and they agree that now is an attractive entry point for investors. Of course, what fund manager worth their salt would admit to it being anything other than a good time to invest in their fund?

However, for long-term investors the argument has merit. It is not difficult to formulate scenarios where European markets fall again from here, but likewise if decisive action is taken on the European sovereign debt crisis markets could easily rally.

Timing the peaks and troughs of the market is notoriously difficult. So with uncertainty priced in and valuations looking attractive, it does appear to be a good entry point for those not wanting to miss out on the upside potential.

Many European managers argue that companies do not equal economies; while European governments and economies may be in trouble, companies have significantly strengthened balance sheets since 2008 and many of them provide exposure to growth outside of Europe.

For investors looking to invest in Europe right now there are numerous options across various asset classes. We have recently met with some relatively newly installed European investment trust managers. Ollie Beckett took charge of TR European Growth * at the start of July and has refocused the portfolio back to its roots as a pure small cap fund.

He has also tweaked the investment approach, dividing up the portfolio into a core sub-portfolio of stocks with structural growth and high return on capital employed and a sub-portfolio containing stocks with opportunistic, deep value, contrarian or cyclical characteristics. The fund currently trades at a discount to its peer group; however, an improvement in the fund’s performance under the new manager could lead to a tightening of the discount.

Fidelity European Values * saw Sam Morse take charge at the beginning of the year. The fund is comfortably the largest of the European equity investment trusts with a market cap of almost £470 million. Morse focuses on stock selection, in particular looking for companies with strong dividend growth potential. The manager’s performance so far this year has been good and this has seen a tightening of the discount which has brought it in-line with the peer group.

In April this year, Marcus Phayre-Mudge took over the lead management role of TR Property and worked with the former manager for over a decade. The fund primarily invests in European property equities, including the UK, and also holds direct property in the UK. The manager is very selective in terms of sector and region, with no exposure to what he refers to as the ‘Olive belt’. TR Property has an enviable long-term performance record and we see no reason why this would not continue under the new manager’s stewardship.

*Corporate broking clients of Winterflood Securities