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What is Europe?

This isn’t a trick question, but refers to the variety of economies and currencies that a European fund gives you exposure to.

The term "Europe" is quite loose and can be used in various ways. From the point of view of funds, it is most important to distinguish between those that invest in the UK as well as continental Europe and those that only invest across the Channel.

ALT_TAGFunds that can invest heavily in the UK have an advantage when the eurozone is in trouble, although the investor who already holds funds dedicated to Britain should make sure they are not simply replicating exposure to the same sectors and companies when they buy such a fund.

As well as the euro and our pound sterling, there are other currencies on the continent such as those in Scandinavia and Switzerland, and understanding the exact exposure of the fund is important.

Eastern Europe – typically the countries of the former Warsaw Pact – tends to be considered as an emerging market.

Why invest in Europe?

Although the troubles in the eurozone have made many investors wary of the continent, there are strong economies in Europe and even strong companies in the weaker countries.

Europe is home to many top-class engineering and industrial firms in particular, as well as luxury goods firms that sell to the middle classes of the developing world.

Although the current macro-economic climate does not look good, it remains an extremely populous and wealthy area, and there will inevitably be a pick-up in domestic demand at some point.

It is important to take into consideration macro-economics and the future of the eurozone, without being blinded to the strengths of the region.

What are the risks?

There remain political issues surrounding the existence of and managing the single currency, of which it is impossible to predict the outcome.

The health of the continent’s economies remains highly dependent on global sentiment, with the region widely believed to have some of the worst prospects for economic growth.

As well as the political issues, there are worries about demographic decline and high levels of regulation.

In the shorter term, many of the best blue chips are in high demand and may be overvalued relative to their history.

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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