Look to Europe for equity gains

As US equities run into turbulence, now may be a good time to look to European stocks, where valuations are lower and the economy has yet to fully benefit from a reopening.

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Now is a good time to invest in a European equity fund.

After years of under-performing the US markets, European equities are keeping pace with their American counterparts this year. While the S&P 500 Index is up 11.9 per cent year to date, the Euro Stoxx 50 has gained 11.8 per cent over the same time.

This competitive performance reflects the view of many investors that Europe’s recovery has yet to gain momentum, while US economic growth may soon peak. Then too, European stock markets—somewhat like their Canadian counterpart—are more exposed to cyclical stocks that stand to do well in a recovery. This contrasts with the US, where a heavy weighting of technology stocks is holding up the market’s advance, as investors shun these issues in favour of cyclicals.

If you haven’t already invested in a European equity fund, then, now, in our view, is a good time to do so. We recommend Trimark Europlus Fund (Fund codes: AIM1673(FE), AIM1671(DSC)) for this purpose.

Strong capital growth over long term

Trimark Europlus seeks to produce strong capital growth over the long term. The fund invests mainly in companies located in Europe, including Eastern European countries and the Commonwealth of Independent States (countries of the former Soviet Union). It may also invest in the Mediterranean region.

The fund is categorized as a mid-cap growth fund by Morningstar Canada. Its management team looks for companies that are quality businesses that possess sustainable competitive advantages, have strong management teams and are attractively priced in relation to their intrinsic value.

The fund has been a strong performer in the European equity category. It has performed in the top quartile of the category in each of the past three-, five- and 10-year periods. Also, in the 10 calendar years ended Dec. 31, 2020, it performed in the top half of the category in nine years.

Over the last 12 months, the fund has performed in the third quartile. Periods of short-term under-performance can be a good time to add to such a fund, before it returns to its winning ways.

And, though long-term results have been strong, the fund’s volatility is slightly less than average.

High management expense ratio

A relatively high management expense ratio of 2.68 per cent, however, represents a hurdle. But that doesn’t seem to have hurt the fund that much in the past.

With 10 per cent of its assets currently invested in cash and its equivalents, the fund is well positioned to take advantage of emerging opportunities. Aside from this, top-country investments include: the UK, 16 per cent; Germany, 10 per cent; Poland, 10 per cent; France, nine per cent; Finland, seven per cent; and the Netherlands, six per cent.

Trimark Europlus Fund is a buy if you want strong long-term growth and can accept the risk of investing in a single region.

This is an edited version of an article that was originally published for subscribers in the June 11, 2021 issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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