MANY foreign markets have performed well over the past three years. Although the United States stock market is now considered to be over-valued, there is growing interest in Europe.
For the first six months of this year, the Euro Stoxx 50 Index was up 17.24% in dollar terms, making Europe one of the world’s best-performing markets.
“Europe has been in a bit of a slump for the past few years on the back of the Greek crisis and uncertainty around the future of the European Union. However, we are now starting to see growth coming back into the region,” says Brian McMillan, the head of retail sales at Investec Structured Products. “The result of the recent French elections has also added some stability to a region that had been facing a lot of political uncertainty.”
Europe is at an earlier stage of the economic cycle than the US. This means there is stronger earnings growth potential for European businesses, many of which are showing improved profit numbers.
Most global equity funds, particularly index-trackers, have a high exposure to the US market.
“The US makes up nearly 50% of world markets, and it has done extremely well over the past nine years since the financial crisis,” McMillan says. “But a lot of people are looking at it now and saying it probably doesn’t offer the best value. That supports the argument for wider diversification, and Europe is an obvious place to look.”
One way of getting exposure to European equities is through the Euro Stoxx 50 Index, which is made up of the 50 largest and most liquid stocks in the Eurozone.
You can do this by investing in the db x-trackers Euro Stoxx 50 Index exchange traded fund (ETF) listed on the JSE. This provides simple, low-cost access to a rand-denominated investment that can be bought and sold as simply as a local share.
Offshore ETF options include the HSBC Euro Stoxx 50 and the iShares Core Euro Stoxx 50.
If you want risk protection and are comfortable with a rand-denominated investment, Investec is accepting investments into its Wealth Accelerator Equity Structured Product, which provides 100% capital protection over a four-year term.
If the Euro Stoxx 50 Index rises at all over this period, even by just one point, investors will receive a return of 63% in rand terms, which is an annualised 13%. These figures are net of costs, and the minimum investment amount is R50 000.
“The product provides protection for investors who are worried about markets being expensive,” McMillan says.
“If the US market does have a correction, it will feed into other world markets, and so this product mitigates that risk. And at the same time it offers a big kicker, even if there is only marginal growth.”