European equities getting increasingly popular, says BlackRock’s Zoellinger
Financials are offering exciting opportunities again, according to Andreas Zoellinger, co-manager of the BlackRock Continental European Income Fund.
In the last few years market turmoil deemed banks as high risk investments. There is now a turning point in sight as some European banks start to hold cash on their balance sheets once again; for example, Nordea, a solid and secure Norwegian bank with an extremely strong CEO. Nordea has exposure to a fast recovering Nordic region with a strong commitment to paying investors back excess capital to shareholders. Whilst the broader financial sector has seen some insurers also offering attractive prospects, such as Norwegian Gjensidige Forsikring, which offers investors solid reliable dividends and has an over capitalised balance sheet.
Many consumer staples are overvalued
Although consumer staples provide a dependable income stream, they are often extremely overbought and overvalued. They have good global growth and a strong customer base but there are other cheaper, better value stocks available offering equally attractive investment prospects. For example, industrials provide just as much global diversification, safe dividend streams and growth without the cost of paying peak valuations.
The industrials sector provides opportunity for international growth
As volatility continues in emerging markets, European stocks with international exposure to developed countries offer attractive investment opportunities. A number of global industrial stocks have exposure to regions such as the US and Europe which are driving economic recovery. For example, Kone, the Finnish domiciled global lift company has strong exposure to the US, no debt and has paid two special dividends in the last three years due to a large amount of cash on its balance sheets. It has grown earnings at a compounded rate of more than 10% for the past five years.
Within the industrials sector, mid-cap stocks are interesting as there is often a low forecasting efficiency for dividends. Assa Abloy, the world’s leading locksmith who own Yale, are a prime example of this. They make sensible acquisitions, have extremely strong pricing power and have strong exposure to the US through the production of traditional locks and security cards.
Some domestic infrastructure companies do not grow dividends but still offer value
Many domestic infrastructure companies offer value, even though they do not grow dividends in the same way as inflation protection income growth stocks such as Kone. This is because they already pay a sufficiently high income through a constantly attractive dividend yield. Terna, the Italian electricity grid is an example of this as it provides high and stable yield which currently sits at 6.3%.