Despite the strong performance of the Irish stock market, many investors have been widening their portfolios to include international stocks not only to take advantage of global opportunities, but to spread the risk of leaving all your assets in a single country or fund management basket.
EMU is the latest, and most profound development in the internationalisation of investor`s portfolios. Privatisation of nationalised industries in Europe and the increasing demographic pressure of European pension funds to meet the retirement needs of so many pensioners is resulting in a shift away from gilts as the underpinning investment of European pensions towards better yielding stocks.
This combination of factors is playing a huge part in the emergence of European equities as a strong player in the international equity market, according to the latest report on the regional fund performance of the major global institutions who market their funds in Ireland, by the Dublin independent fund managers Asset Management Trust, (AMT).
The accompanying table shows how strong this performance has been in the first half of the year but AMT maintains that continental European equities are showing good short, medium and long term performance prospects.
In the short term, says AMT's investment and research director, Mr Niall O'Doherty, in the report, "strong earnings growth continues and sentiment is very firm. Liquidity and consumer confidence has returned to the marketplace." There is overheating of not just the Irish economy, he notes, but also in Spain and the Netherlands. "After recent strong performances we expect these markets to slow in the next few months."
With Germany and France clearly in a recovery cycle (i.e. strong economic growth, falling unemployment and low interest rates/inflation) there has been a considerable "wave of corporate activity" in the form of "restructuring and cost cutting, privatisation and mergers and acquisitions" that is maximising shareholder value. "EMU will bring increased consolidation and competition. The strong will get stronger and as a result asset allocation bias towards larger companies with pricing power and a large market share will develop."
As the table shows, the best continental European equities performance in the first six months of this year was from Invesco fund managers, with a 41.65 per cent return, following by Gartmore with a nearly 40 per cent return. The overall average for European equities is nearly 34 per cent, though with the exception of the Templeton fund (22.67 per cent) and Fleming (32.03 per cent ), the others have well exceeded the average.
European equities (including the smaller companies funds index averaging 30.95 per cent) have outperformed all of the other global fund groups with US equities the next best overall performer with an total index average of 20.22 per cent, though most of the US fund managers operating here, with the exception of HSBC (21.36 per cent) and to a lesser extent Invesco (19.98 per cent) under performed that average by between 7 and 12 per cent.
British equity funds have also done well, with companies here achieving six-month returns ranging from a high of 22.63 per cent (Fleming) down to 17.62 per cent (HSBC) with the overall British index at 18.88 per cent.
Despite the serious financial difficulties in Japan (the overall index average for the first six months is -0.54 per cent), most of the fund managers operating here
Flemings (12.64 per cent), Invesco (11.28 per cent), Gartmore (10.88 per cent) and Templeton (5.23 per cent) outperformed the index with their mostly smaller Japanese company funds. Only HSBC reported a negative return of minus 0.54 per cent.
Emerging markets have not done well in the past six months either with the index reaching an average of minus 13.61 per cent, outdone only by the Hong Kong and Chinese Equity markets index of minus 26.77 per cent.
Copies of the Asset Management Trust report on performance of institutions who market their funds in Ireland is available by calling AMT at (01) 660 4077.
