Investing in Europe

aroominyork

In aiming for a balanced equity portfolio the one geographic region which I can’t figure out is Europe (ex-UK). For years it has underperformed the global market and the best performing active funds are very growth oriented, which I want to avoid. I’m tempted to underweight Europe and move my Europe fund (Fidelity European) into my core global index fund. Does anyone else find Europe tricky?

Filo25

aroominyork said:

In aiming for a balanced equity portfolio the one geographic region which I can’t figure out is Europe (ex-UK). For years it has underperformed the global market and the best performing active funds are very growth oriented, which I want to avoid. I’m tempted to underweight Europe and move my Europe fund (Fidelity European) into my core global index fund. Does anyone else find Europe tricky?

Luckily for me I am happy with the growth bias of some of the better performing funds, but yes it does seem to struggle when you go away from the growth focus.

Another_Saver

If you filter out the US from the global market, Europe ex UK has behaved in line with the rest.
Go on trustnet, charting, select indices, FTSE world, FTSE all world ex US and FTSE Europe, for the US change investment type to OEICs & unit trusts, under sector select North America.
You'll see that It's not that Europe ex UK is underperforming the world, it's that the US is outperforming the rest of the world.
Whether that can continue is anyone's guess. Arguably what you are proposing is to sell Europe low to buy the world high.
You could go with a Europe ex UK index fund to keep the same exposure, but over the long run most developed global markets produce similar returns so swapping your current holding into a global equity index fund is just as sound a course of action too.

There are reasons to be optimistic and pessimistic about European and US prospects, the debate will never end.

Albermarle

Europe is a big place and not all the major countries stock markets have behaved the same recently .
Year to Date Dax Germany is only down 5% whilst IBEX Madrid is down 20% ( still better than FTSE 100) 
Longer term ( 5 years ) only the Dax and AEX Amsterdam are up . Over 5 years IBEX is 34% down !
Dividends not taken into account .

Prism

Europe is one area where active funds seem to do pretty well, but like you point out they tend to be growth focused. I have only really used small/mid cap European funds previously. Currently I only get Europe through global funds.

aroominyork

Prism said:

Europe is one area where active funds seem to do pretty well, but like you point out they tend to be growth focused. I have only really used small/mid cap European funds previously. Currently I only get Europe through global funds.

My active Europe funds were also previously small/mid cap but holding Smithson (as I expect you do) meant I was a bit too much in that mid-space, hence swapping for Fidelity. It is slightly index huggerish - it tends to either track or slightly outperform the index so I guess it's OK. Steady and stable does it...

Prism

aroominyork said:

Prism said:

Europe is one area where active funds seem to do pretty well, but like you point out they tend to be growth focused. I have only really used small/mid cap European funds previously. Currently I only get Europe through global funds.

My active Europe funds were also previously small/mid cap but holding Smithson (as I expect you do) meant I was a bit too much in that mid-space, hence swapping for Fidelity. It is slightly index huggerish - it tends to either track or slightly outperform the index so I guess it's OK. Steady and stable does it...

Fidelity European is the only large cap one I considered half decent. I have never found a place for it but its on my possible list. 

dunstonh

In aiming for a balanced equity portfolio the one geographic region which I can’t figure out is Europe (ex-UK). For years it has underperformed the global market and the best performing active funds are very growth oriented, which I want to avoid. I’m tempted to underweight Europe and move my Europe fund (Fidelity European) into my core global index fund. Does anyone else find Europe tricky?

In every economic cycle, there is a sector/region that outperforms the rest by a long way and another that underperforms.   It is rare for the same areas to be best or worst in the next cycle.   The US was best in the last cycle (although UK small cap gave it close run before CV kicked in).  The US was the worst in the cycle before that.

So, no.   I do not find Europe tricky as you do not know in advance which is going to be best or worst and it's unlikely it would occur two cycles in a row.  Hence, why you diversify.  I use an index fund for the core holding and a satellite managed fund focusing more on European smaller companies.  Another area that has done very well in some cycles and does offer greater potential.  Albeit with extra risk - hence why it is a satellite fund.    I tend to stick to index trackers for the general market or large-cap as managed funds tend not to add value in those areas.   Managed funds are better in more focused areas.

The weightings to Europe are actually lower than you would think given the size of the Europe(ex UK) economy.   But that is to be expected.

Be wary at looking at short term timescales in respect of over/under performance.  Short term issues can have short term consequences that are not going to create issues long term.

aroominyork

I could jump back and forth all day between Fidelity European (large cap, head choice) and Barings Europe Select (mid cap, heart choice) so it's important to remember why I made the choice. It was because, also holding Smithson, I had a higher proportion of mid-cap in Europe than I wanted, and because Fidelity is about a 60/40 growth/value split so this balances the growth tilt of my active funds. Those things still hold good so I should put my tinkering to bed and stick with what I have.

Thrugelmir

"Europe" as a grouping is a mixed bag of companies and economies. Intel's market capitalisation is bigger than Portugal's annual GDP. If you've a core large passive global fund little point in adding a huge number of additional European stocks for diversification. As will most likely have minimal impact on overall portfolio performance. 

aroominyork

Thrugelmir said:

"Europe" as a grouping is a mixed bag of companies and economies. Intel's market capitalisation is bigger than Portugal's annual GDP. If you've a core large passive global fund little point in adding a huge number of additional European stocks for diversification. As will most likely have minimal impact on overall portfolio performance. 

But it needn't be for diversification - it might be to make up the weight. My core index is Fidelity Index World (developed world only) as about 40% of my equities, then I add a few actives like emerging markets/AP, UK smaller companies, some Fundsmith/Smithson, and end up underweight Europe. So I can remain underweight or plug the gap... and that's where I end up in the conundrum. But it's less than 5% of my equities so it's not going to make or break either way.