Even after two years of the onset of the pandemic, economies have continued to suffer globally, Europe being one of them. GDP was seen declining earlier in the year, urging stimulus and support from governments and central banks.
To bring the economy back on track, a stimulus will be pumped into Europe in the coming years. The stimulus will be composed of an advanced EU budget, about €1.1 and a generation fund of around €750 billion to aid recovery efforts and finance the European Green Deal.
Although economies were recovering throughout the year, the ride was not short of setbacks. Inflation is reaching new highs, and industries are facing supply chain bottlenecks. Moreover, there is now omicron to consider in certain countries.
The symptoms of the new variant were expected to be mild, but some countries have reintroduced restrictions. These developments around the variant are indeed a hurdle to growth as we welcome the new year. However, we are expecting it to not last long this time.
Specific economic data is optimistic and shows room for a fast recovery, and European companies are doing good as compared to their counterparts. This gives investors opportunities to look forward to.
European stock markets
As the end of 2020 came near, the European stock market recovered as it passed through easing restrictions, better vaccination rates, and the hope of economies opening. Over the year, the market jumped 15.75%. It was not a straight road, though.
European markets had a turbulent ride with rising Covid-19 cases, concerns of an energy crisis, and the very new restrictions.
Some countries took the storm well, the Netherlands returned an impressive 35% over the past year. The Dutch-based semiconductor manufacturer ASML flourished as supply chains disrupted and electronic components suffered from shortages. The Nordic markets also bounced back pretty well, with Norway jumping 26.4% and Sweden 19/40%.
Spain, however, could not stay afloat and was the poorest performing market in the period. Spain was also impacted more than other countries due to its poor accessibility to international energy grids and its dependency on other countries for energy supplies.
Germany faced barriers this year as well, with tightening restrictions and supply chain bottlenecks weakening the economy. Inflation has reached its highest in decades, 6%. The European Central Bank believes that the hike in inflation is temporary and that it will decline to normal levels once supply and restrictions subside.
Investment Styles and Company Sizes
The past year witnessed the smaller companies outdo the larger ones in Europe. There is a risk factor attached to smaller businesses, but since they are under-researched, they offer greater growth potential.
Banks and industrials, the sectors linked to the health and state of the economy, performed well in the first half of 2021 followed by technology and healthcare in the latter half of the year.
Investors moved towards the companies that were ignored and traded at lower valuations, also called ‘value stocks,’ as vaccinations were rolled effectively at the beginning of the year. This did not bode well for ‘growth’ stocks, the ones that have the potential to grow.
Growth stocks also are doing well now, with technology and consumer goods sectors taking advantage of it.
The prospects of growth companies look flimsy as inflation and interest rates are picking up pace. This is why one should have a diversified portfolio, so you are always winning somewhere.
European Wealth Shortlist Funds Performance for the Year.
European Wealth Shortlist Funds delivered a mixed performance over the year. But it is not expected to do the same as it has different approaches and objectives.
Past performance cannot necessarily be telling of the future, and 12 months is a short time to look at how an investment has done. Investments should be of a diversified portfolio for the long term, at least five years, that is. Investments fluctuate in value, so you could get back more or less than you put in.
Over the year, the best performing Wealth Shortlist fund was the Threadneedle European Select Fund. It returned 16.92%, thanks to the strength of the stock-picking ability of managers and investments in industrials, financials, and consumer staples sectors.
ASML, a semiconductor manufacturer, and IMCD, a chemical distributor, were two of the best performers. ASML did well due to the speeding up of digitization and the demand for semiconductors, while IMCD welcomed increased demand and released robust results.
Although TM CRUX European Special Situations grew 10.28%*, it was a weaker performer over the last year. Technology, financials, and the consumer discretionary sectors depreciated from performance.
In addition, the fund invests in several undervalued companies with promising prospects that so far went unnoticed. Businesses like German stock exchange operator Deutsche Boerse have been out of favor with investors and putting pressure on performance. Investments in industrials like French network developer Spie, on the other hand, helped.
European Funds
Over the last year, funds that focused on smaller companies outdid the ones in larger companies. European Special Situations, IFSL Marlborough returned 38.23%, while ASI returned 27.97%*. While Marlborough benefited from a selection of investments in consumer discretionary, financial, industrial sectors, ASI invested in healthcare, financials, and technology, leading the charge. Legal and General European performed the worst. Investments in technology, oil & gas companies, and consumer discretionary weakened the performance.