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4 European Mutual Funds to Buy on a Resurgent Economy

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Eurozone’s services and manufacturing sectors sustained the momentum seen in July and, in fact, added further strength this month, reflecting the area’s resilience in the wake of the Brexit decision. The European Central Bank’s (ECB) outlook on the Eurozone economy is “still intact” after the Brexit-induced volatility.

In fact, Britain’s economy has staged quite a comeback post Brexit, with its manufacturing sector, real estate industry and consumer spending registering growth in recent times. Banking on these positives, investing in European mutual funds is deemed to be a well-devised strategy.

August Business Activity Strong

The Eurozone’s economic activity gained steam in August; a sign that showed the region’s little concern about the U.K’s decision to exit the European Union. In late June, investors feared that Brexit could affect both business and consumer spending across the Eurozone, while may also curtail exports to the U.K.

Data monitoring company IHS Markit revealed that the preliminary August reading for its Composite Purchasing Managers Index (PMI) for the Eurozone rose to 53.3 from 53.2 in July. This gauge of activity in the services and manufacturing sectors for the Eurozone touched a seven-month high this month. According to chief business economist at IHS Markit, Chris Williamson, “Eurozone remains on a steady growth path in the third quarter, with no signs of the recovery being derailed by ‘Brexit’ uncertainty”.

Eurozone economy maintained its resilience despite Brexit shocks, courtesy of a strong show from powerhouses such as France and Germany. The preliminary France composite index climbed to 51.6, its sharpest rise in 10 months, while Germany’s PMI remained strong at 54.4.

Services & Manufacturing Edged Up in July

Such an upbeat preliminary reading in August came in after the Eurozone services sector inched up in July, while the manufacturing sector continued to scale higher. The final composite PMI tracking the Eurozone services and manufacturing sectors went up to 53.2, marking a six-month high. Any reading above 50 indicates expansion.

Among the two major players, France’s final composite PMI advanced to 50.1 in July from 49.6 in June, while Germany’s PMI touched 55.3 in July, a seven-month high. Increase in service sector activity was propelled by rise in the level of new business by French service provider, while Germany’s service sector has been on the rise since the beginning of the third quarter. When it comes to manufacturing, new business growth remained solid, which has compelled manufacturers to expand workforce, partly aimed at raising capacity.

ECB Stance Positive

The ECB policy makers also concluded in their July meeting that the Eurozone economy will survive the Brexit onslaught. The policymakers believe that “the base scenario of a continuing economic recovery and gradually rising inflation rates in the Eurozone is still intact”.

Additionally, ECB President Mario Draghi hinted that further action may be taken in order to boost the economy in case the conditions do not get better. The ECB has also slashed interest rates below zero and is purchasing around 80 billion euros of mostly Eurozone government bonds every month to revive the economy.

Brexit a Blip on Eurozone: 4 Mutual Fund Picks

Given the encouraging signs, it seems Brexit hardly had an impact on the Eurozone, which calls for investing in mutual funds exposed to the region. And why not? The European region having both stable developed markets and emerging economies makes one of the most diverse economic zones in the world. A European mutual fund taps into the strengths of this region and is a natural choice for those seeking to boost their investments.

The question that arises here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have picked four European mutual funds that possess a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), positive 3-year and 5-year annualized returns, minimum initial investments within $5000 and low expense ratios.

Invesco European Growth A AEDAX invests a large portion of its assets in securities of European issuers, and in derivatives and other instruments that have economic characteristics similar to such securities. AEDAX’s 3-year and 5-year annualized returns are 2.7% and 8%, respectively. The fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.37%, which is lower than the category average of 1.72%.

Fidelity Europe FIEUX invests the majority of its assets in securities of European issuers and other investments that are tied economically to Europe. FIEUX’s 3-year and 5-year annualized returns are 2.8% and 8.2%, respectively. The fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.01%, which is below the category average of 1.72%.

Invesco European Small Company A ESMAX invests a major portion of its assets in securities of small-capitalization European issuers. The fund’s 3-year and 5-year annualized returns are 5.3% and 11%, respectively. ESMAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.44%, which is lower than the category average of 1.72%.

Putnam Europe Equity Y invests mainly in common stocks of large and midsize European companies. The fund’s 3-year and 5-year annualized returns are 1.3% and 8.2%, respectively. PEUYX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.05%, lower than the category average of 1.72%.

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