Reduced oil prices have benefitted the Eurozone, which is a big importer of energy, and helped boost consumer spending.
Several industry sources told Fund Selector Asia that the global market volatility this summer, sparked by China, showed the resilience of the EU market and most are prepared to increase their allocations moving into 2016.
UBS noted in its 2016 forecast that the EU is an attractive region given its on-going economic recovery and the ECB’s readiness to loosen monetary conditions. The lender said that the euro’s weakness could help Eurozone exporters on a trade-weighted basis and that it expects earnings growth of 8%-12% in 2016.
Yet the ECB disappointed the markets earlier this month by not taking the expected aggressive stand on its stimulus program. For example, there was no expansion of the asset purchase programme and no increase in the amount of bonds bought each month.
Against this backdrop, Fund Selector Asia compares the Baring Europe Select Trust against the Parvest Equity Europe Small Cap Fund.
Luke Ng, senior vice president at FE Advisory, has provided a comparative analysis.
Investment strategy review
Both funds invest in European equities, but their investment strategies are quite different.
The Baring fund, managed by Nicholas Williams, is measured against the Euromoney Smaller European Companies (ESEC ex-UK) benchmark. With this constraint, Williams does not include UK holdings in the fund’s portfolio.
Williams focuses on small cap companies. He typically starts his stock selection process with a quantitative screen to eliminate illiquid stocks and those with undesirable financial viability.
Williams follows the growth-at-a-reasonable-price (GARP) concept. His team only invests in stocks that conform with GARP principles. The strategy aims to avoid the extremes of growth or value investing by selecting stocks that have both low relative price-to-earnings ratios and high earnings per share growth rates.