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UK investors flock to European funds

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Retail investors flocked to European stock markets in May, with European funds seeing their largest monthly inflow since September 2015.

Alastair Wainwright, fund market specialist at the Investment Management Association, said: “Financial markets on the continent have improved following political and economic developments. Europe ex UK received a net retail inflow of £290m and European Smaller Companies took in £42m.”

Managers in the European sector say there are still plenty of opportunities in European markets, but also some pitfalls for investors. Richard Pease, manager of the CRUX European fund, said: “On a three to five year view, people are still punished for being savers in Europe. Rates may go up, but not meaningfully and we can’t see why people would take the inflation risk on fixed income. This means people are likely to prefer sensible equities.”

However, he said that value is difficult to find in certain larger capitalisation companies. Companies with a good track record of growing their earnings and dividends tend to be very expensive. The Crux team is finding more opportunities among smaller companies and those that are new to the market. Among their holdings are Scout24, a property and auto sales portal, and Playtech, a gambling software group.

Thomas Becket, chief investment officer at private client group Psigma, said: “In Europe, economic sentiment is strong. The German IFO survey was an important signal and there is clear economic momentum. Europe’s contribution to the global economic recovery is growing, some investors were caught out and have started piling into European assets.” However, they believe that Europe’s problems are not yet over and increased interest in the region means there is less value there.

Elsewhere, the Investment Association’s monthly statistics of UK investor behaviour showed net retail sales at their fourth highest on record at £3.6bn. Sterling Strategic Bond funds were the top-selling area, seeing inflows of £392m.

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