Now, fund houses sell Europe story in India

Contend equities market there presents attractive opportunities to invest, as continent emerges from economic crisis

After launching schemes that invest in the US, Brazil and China, mutual funds are turning their focus to Europe. Three fund houses Religare Invesco, JP Morgan and Deutsche AMC have launched Europe-focused products. Others are expected to follow, with the continent’s prospects are seen as improving, after one of its worst economic crisis in recent history.

Anis Lahlou, executive director, London, at JPMorgan Asset Management, said: “Looking at investors’ interest in Europe, which resurged after historic lows in 2012, the Europe equities market poses an attractive option to invest.”

The three open for subscription are feeder funds (fund of funds), which invest in existing schemes betting on Europe. Though the consensus is that the Euro zone has not recovered fully from its crisis, many believe the worst might be over.

SHIFTING FOCUS

• Low correlation of returns across countries can have a favourable effect on portfolio risk and return
• 160 of Fortune Global 500 companies in the world from Europe
• 32 of top 100 global brands from Europe
• European Union gross domestic product at purchasing power parity (2012) is $15.9 trillion
• It has 19 per cent share of total world GDP (2012)

Vetri Subramaniam, chief investment officer at Religare Invesco MF, says, “A majority of the difficult decisions have already been taken to lift the European economy. Though there is some more pain, there is significant improvement in the fiscal data for some economies. I think it's the right time for investors to take exposure in European equities to diversify assets."

He says several sectors are trading at discounts to the long-term average valuations. This is an important factor to take into consideration, as Europe is exiting a long period of negative growth and entering positive territory.

Experts say a number of sectors within Europe are at low valuations relative to history and headwinds on corporate earnings should start to fade. Of the top 11 sectors, barring consumer goods, all currently trade at a discount to their long-term average cycle price to earnings ratio, according to a presentation of Religare Invesco.

MF officials feel there could be demand for Europe-focused schemes in the wake of the better-than-expected performance of US markets in 2013.

Nandkumar Surti, managing director of JPMorgan Asset Management (India), said: “With economic indicators showing a positive trend, data points reversing and signs of developed Europe being on a growth trajectory, it’s the right time to offer this fund to Indian investors.”

He feels developed Europe is at the juncture where the US was in 2011 and this is an opportune time to seize the opportunity.