Standard Life European Equity Income fund
Andy Parsons, head of investment research at The Share Centre, highlights the potential benefit of investing in Europe for income and selects the Standard Life European Equity Income fund as his fund of the week.
"The universe from which investors can select their potential holdings from is greater in Europe than from the UK, ensuring a real ability for income diversification across companies and sectors, and also much less of a reliance on large cap constituents.
"The debt crisis in Europe has added pressure to the currency and resulted in incredible equity valuations. So for the brave, now might be a good time to dip their toe into European equities, particularly if income producing stock is the investor's preference.
"Companies that produce an income tend to be mature companies with a global reach and a recognisable brand. In the case of some European companies, they can trade on a discount to their global peers due to the association of the sovereign debt issues of the country in which they reside. A weaker Euro should provide an opportunity for investors to start picking up some cheap European blue chip stocks, particularly those that have a strong export bias.
"The threat of default from Greece remains, however much of the attention has now switched to the larger nations of Spain and Italy. Financial aid has recently been made available to the Spanish to help support their banking sector and whilst short term respite can be seen, history has already taught us that unease and tension within the financial markets soon returns.
"Volatility will undoubtedly remain within Europe for the foreseeable future. However, businesses will continue to strive to develop and further their products and services, thereby opening up investment opportunities.
"The Standard Life European Equity Income fund is managed on a concentrated basis, thereby demonstrating the manager's conviction in his investment decisions and currently holding 53 stocks. Aside from the individual stock picking flexibility, the fund also benefits from the proven success of the Standard Life winners list approach, in which the various investment teams are given the group's top preferred companies within a region. Should a company appear within the winners list that meets with the funds overall investment objectives then it will be required to be held within the said portfolio.
"Managed by Will James, the fund will look to hold those companies where the dividend is not only seen to be stable and reasonably high, but also where they believe the growth of the dividend is under-appreciated and could surprise on the upside.
"With all the concerns over the European Sovereign debt issues, investors will be reassured when looking at the overall portfolio to see a current preference for more northern European countries and companies contained within it.
"The fund has only been running since April 2009 and yet in that time, it is ranked first quartile over three years returning 36.82% compared to the sector average of 22.65%. Over one year, it is ranked 4th out of 107 (first quartile) returning -5.22% compared to the sector average of -15.04%. Year-to-date the fund has returned 5.85% compared to the sector average of 1.84%, again ranking it first quartile. In terms of yield, the fund is currently yielding 5.61%, albeit this is not guaranteed."