The best funds to buy in Europe

published 12 December 2005

Could this be the year European funds finally come good? After years of lacklustre performance many are predicting the tide is about to turn, with firms on the continent poised to deliver strong returns, says Jenne Mannion in The Sunday Telegraph. Despite sluggish economic growth, company valuations all over are cheap: the average firm in Europe is trading on a p/e ratio of 13 times. This compares to an average p/e of 16 in the US. The market is also delivering good dividend yields of around 3%. Furthermore, after three years of restructuring and cost-cutting, many European companies now have healthy reserves of cash that they can return to shareholders or use for acquisitions.

So which are the best funds to go for? As ever, the trick is to find those run by reliable stockpickers. These include Artemis European Growth, Jupiter European Special Situations, MFS Continental European and New Star European Growth. Each of these funds has reached the top 25% of the performance league tables over both one and three-year time frames. Richard Pease, manager of the New Star fund, takes an admirable approach to stockpicking: he prefers companies where the management own significant stakes in the business, thereby aligning their own interests with those of the shareholders.

Other widely held funds include the £2.9bn Fidelity European fund, managed by Tim McCarron, the £1.5bn and Gartmore European Select Opportunities, managed by Roger Guy, both of which have maintained a steady performance in recent years.