Questor on The European Smaller Companies Trust – Europe is in a mess – here’s how to take advantage
An activist investor adds risk, but could mark a buying opportunity if defeated
There are many reasons why investors might shy away from Europe.
Ukraine continues to cast a shadow and the European political scene is a mess. The Continent’s economy faces severe challenges – European exports are constrained by a lack of demand from China and Trump is threatening tariffs on Europe’s exports to the US, for example.
However, those woes are reflected in valuations, and it would be a mistake to write off the long-term potential of the region’s companies. Questor feels that pessimism about Europe’s prospects may have created a buying opportunity for the contrarian investor.
The average stock in the MSCI Europe ex UK index is trading on about 14.4x this year’s forecast earnings, which compares to 18x for the MSCI All Countries World index. Unusually, Europe’s smaller companies are even cheaper than its large caps, trading on about 12.3x this year’s earnings.
Looking at total return data in sterling, smaller European companies have outperformed large caps in 16 of the last 24 calendar years, but have underperformed in each of the last three years – which might suggest that small caps are overdue for a period of better returns…. read more here