Five funds to help you invest in a new Europe
Growth stocks are a much bigger part of European markets than many investors realise. These five funds will help you buy in.

Investors sometimes use national stockmarkets as a shorthand for their views about a country, but that doesn’t mean that a given market tells you much about the domestic economy. Take the FTSE 100. It’s the key UK equity index but it’s full of firms that don’t do a huge amount of business in Britain. It’s just a collection of companies that happen to be listed in London. The same is true for many European markets and for regional indices such as MSCI Europe.
That matters because markets get hooked on narratives, and the dominant one today is that the US means growth, while Europe is boring (if cheap). These narratives are hard to dislodge, but over time they can decline in usefulness. This might be the case in Europe, according to a recent report from analysts at Morgan Stanley. They argue that European markets are changing, with new sectors becoming more important.
Bye-bye banks
Some of the highlights really stand out. The biggest sector in Europe? Banks or energy stocks? No – healthcare and especially pharmaceuticals. Technology stocks account for about 8% of the value of the MSCI Europe index, on a par with banks, which have halved in importance since 2010. Energy has also shrunk, to under 5%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Or if we go by countries, Germany is hugely important – but not the conventional story of engineering giants hooked on China. The largest sector in the MSCI Germany index is technology (16%), with healthcare on 12%. Meanwhile, Denmark and The Netherlands are far more important to the European markets than either Italy or Spain. In fact Denmark has been the best-performing country in Europe over the last decade, driven by healthcare.
Of course, if we look at the current situation, the picture is mixed. On the plus side, the European Union is finally providing more bloc-wide fiscal safety nets, which could make a huge difference in the long term. On the negative side, while Europe seemed to be making a better job of controlling coronavirus until a few weeks ago, that’s now clearly evolving for the worse. Expect more short-term market weakness.
Investing for growth
Still, if you want to invest in the region, there’s an excellent list of first-rate funds. These include the Baillie Gifford European Growth (LSE: BGEU), which is typical of the growth-investing style of this fund house. Top holdings include Prosus (more on which shortly), Zalando (online fashion) and IMCD (speciality chemicals and foodstuffs). BlackRock Greater Europe (LSE: BRGE) has big holdings in popular growth sectors including drugs giant Novo Nordisk, Sika (a specialist chemicals business), publisher Relx and B2B tech giant SAP. I’d also highlight the BlackRock European Dynamic Fund, which has a similar strategy and profile to the investment trust. But my own personal favourite is Montanaro European Smaller Companies Trust (LSE: MTE), which invests in a growth-orientated mix of smaller businesses (disclosure: Merryn Somerset Webb, MoneyWeek’s editor-in-chief, is a non-executive director of this trust).
There’s also my parting thought, Prosus (Amsterdam: PRX). This is a weird beast. It’s the Dutch-listed international assets division of South African media firm Naspers, which is a first-rate venture capitalist that made huge profits investing in Chinese internet giant Tencent many years ago. But it is no one-trick pony: its portfolio of investments is second to none for a business listed on the public markets. You’ve got stakes in everything from familiar names such as Autotrader, Mail.Ru and Delivery Hero through to a very diversified portfolio of newer businesses. The shares trade at a big discount to the portfolio valuation, but you get a really compelling set of businesses across different sectors, all for a very reasonable price.
Tech’s growing clout in Europe
In Europe, the technology sector has surpassed the value of banks for the first time, reports the Financial Times. Ten years ago, tech accounted for just 4% of the MSCI EMU index, compared to 24% for banks, according to Morgan Stanley. Yet low interest rates have weighed on bank profitability, and the sector has tumbled by a third this year. Meanwhile, European tech stocks have advanced 11% in 2020. Hence the Refinitiv Europe technology index is now worth more (€842bn) than the banks (€822bn). A bias towards “legacy” industries such as banks has been a “significant driver” of the European market’s underperformance “over the last decade”, says Morgan Stanley. Yet with tech rising, things are changing on these bourses.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
-
Zoopla: UK rental growth hits three-year low - is buy-to-let still worth it?
Landlords are already battling with higher taxes and reduced reliefs and now rental growth is slowing
By Marc Shoffman Published
-
How the government’s latest leasehold reforms will help you
The government has unveiled plans to abolish leasehold ownership and replace it with commonhold – here is what you need to know
By Marc Shoffman Published
-
Majedie sees an impressive turnaround under Marylebone
Majedie Investments, a once-ailing trust has seen its discount shrink to almost nothing under its new manager, Marylebone Partners
By Max King Published
-
Should you invest in emerging markets?
Emerging markets offer strong, long-term growth and excellent value, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Should you put your trust in investment trusts?
British investors have steered clear of investment trusts in recent years. They are missing a trick, says Max King
By Max King Published
-
The best ways to invest in Vietnam – Asia’s communist dynamo
Vietnam has long been one of our favourite markets. The prognosis remains auspicious, says Alex Rankine.
By Alex Rankine Published
-
India is a new global powerhouse — should you invest?
India’s growth rate has slowed recently, but there is still ample scope for investors to benefit from its development.
By David Prosser Published
-
Should you continue to hold Smithson Investment Trust?
Opinion Smithson Investment Trust, a small- and mid-cap fund, has struggled to live up to lofty expectations, says Rupert Hargreaves.
By Rupert Hargreaves Published
-
Renewable infrastructure trusts on the road to ruin?
Rising discounts and yields for renewable infrastructure trusts reflect the unsustainability of the subsidy system, says Max King.
By Max King Published
-
Three private equity trusts going cheap
Opinion These three specialist private equity funds focus on high-growth companies
By Max King Published