The equity managers who remain upbeat despite market woes

European equities fund managers are urging potential investors to take a long-term view amid short-term volatility.

European equities have rebounded this year almost as far as they fell in 2011. Shares rose 12.2% last quarter, repairing part of last year’s sharp falls, as the ECB’s €1trn long-term bank loan programme fed equities and ‘risk-on’ mindsets.

European fund managers have mixed short-term views, but are upbeat over the medium to long term. And they agree negligible returns from Europe’s sturdiest risk-off asset, Bunds, make them unsustainable.

John Bennett, Henderson’s head of European equities, says: “People are grasping for safety in Bunds, but a 1.9% yield will destroy them over 20 years and equities are the only hope then.”

Jeffrey Taylor, head of the European equities team at Invesco, says owning Bunds at current levels “is only a valid argument if you really think the end of the world is nigh, or the European project is about to implode”.

Uwe Zoellner, head of pan-European equities at Franklin Templeton Investments, says: “Investors still seem to fear a repeat of 2008 when, all of a sudden, the world economy almost came to a halt for a few months. The result was GDP shrinking to rates in the mid-single digits in 2009. This explains why so many stocks today trade at similar levels as they did back then.

“The current negative stance of investors overestimates cyclical risk. It also ignores that companies are much better prepared, and in a much better shape, than in 2008. Debt has been reduced, capex has been cut back and inventory levels are tightly managed.”

Bearish for coming months

Bennett professes “bearishness for the coming months [for European shares] because I think we have had a good rally, and we are in for a pretty turbulent summer”. On a five to ten-year horizon he is more bullish. His favoured overweight currently is pharmaceuticals, “the lead candidate for a slow burn stealth, counter-intuitive bull market in Europe”.


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