Is now the time to invest in Europe?

European shares might be ripe for picking, as fund managers dive back in

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

European stock markets have been pummelled in the wake of Britain's decision to leave the European Union.

Not surprisingly, fund managers, including Australia's own PM Capital, Magellan Financial Group Ltd (ASX: MFG), Platinum Asset Management Limited (ASX: PTM), Ellerston Global Investments Ltd (ASX: EGI) and Forager Funds Management have seen their international funds hit due to holdings in the likes of Lloyds Bank and ASX-listed CYBG PLC CDI 1:1 (ASX: CYB) – the UK banking spin-off from National Australia Bank Ltd (ASX: NAB).

Well, Platinum Asset Management is reportedly increasing its holdings in European Banking stocks, according to the Australian Financial Review (AFR).

The paper reports that Platinum's position in the banks has accounted for almost half of the fund manager's losses so far this year. Platinum's Unhedged Fund saw its value sink 9.9% in 2015-16, compared to a 0.6% fall for its global equities benchmark. Financials account for 23% of the fund's total assets. However, Platinum is a long term investor, and over 10 years the fund has returned 7.4% per annum net of fees against its benchmark of just 4.2%.

According to Clay Smolinski, the Unhedged Fund's manager, European banks are being priced with large permanent falls in their earnings power and a full break-up of the European Union. But he sees that as low risk.

And that appears to be a similar view by other fund managers exposed to Europe.

PM Capital's Paul Moore has told clients that it's important not to jump to any irrational short term conclusions. Magellan's Hamish Douglass has told the AFR that he thinks there's a chance the UK doesn't even end up leaving – but even if they do, he sees little downside risk.

In a recent update for the Magellan Global Equities Fund – or MAGELLGEF TMF UNITS (ASX: MGE) as Google Finance refers to it – exposure to Lloyds Bank was a significant contributor to the fund's  0.2% fall for the June 2016 quarter – compared to a 4.4% rise in the index. But as the manager says, "Lloyds is well placed to meet these challenges…with a simple, relatively low risk, business model."

Foolish takeaway

That suggests the selling has been overdone, and now might be the perfect time to consider getting exposure to Europe. Retail investors can pick from the numerous international listed companies like the ones mentioned above or directly into the iShares European Exchange Traded Fund or ISHEUROPE CDI 1:1 (ASX: IEU) which tracks the S&P Europe 350 Index.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »