Andrew Merricks finds further evidence that it could be time to invest in European stocks.

I had an interesting call from a journalist the other day. ‘Institutions have been buying European stocks far more heavily in recent weeks,’ she said, ‘yet Europe remains the least bought in the retail arena.’ In other words, professional investors are getting in early, while private investors have not been told by their advisers or through press articles to do so yet. There remains a deep scepticism on this side of the Channel of those bureaucratically driven types who live on the other side. But are we missing an opportunity?

There are currently several reasons to consider dipping our toes into European markets. In no particular order they include the following. Europe is generally in less debt than either the UK or the US. Agreed, some countries in the euro zone have got themselves into a pickle, but this leads to another point. There are far more companies for a good fund manager to choose from in Europe than there are in the UK. So if you are in the camp that believes Armageddon has been avoided and the global economy is recovering, why wouldn’t you want more companies to choose from that may benefit?

Which brings us to another reason. Europe will tend to outperform the UK in a bull market, yet underperform in a bear. If you think that the recovery is sustainable but don’t own any European funds, is it time to think about doing so?

And so back to the original point. The attractive valuations of European stocks appeal to me as I prefer to be in something before the herd arrives. My interest heightens further when one of the best European fund managers in recent times decides to launch a new fund and put large amounts of his own, and his family’s, money into it. Richard Pease made his name managing the Jupiter European and European Special Situations funds until 2001, and then the New Star European Growth fund until now. Each of these grew to over £1 billion in size.

Pease has insisted that this new fund be capped at half this amount. To you and me that is still an eye-watering sum of money, but in ‘Fundworld’ it is not. I think it is significant that he would rather turn money away than continue to hoover it in, as when a fund becomes too big it is impossible to manage it in the same way as before.

Andrew Merricks is head of investments at Skerritts consultants. You can contact him on 01273 204999 or via email at andrew@skerritts.co.uk