As economies go, Europe is struggling. It’s still emerging from the pandemic, and a war in Ukraine has severely slowed natural gas supplies from Russia, helping to push inflation to 40-year highs. The odds of a recession have soared this year, and the European stock market has noticed.
The MSCI Europe stock index, which holds roughly 430 stocks across the continent, is down 17.1% over the past year. Funds that invest in Europe are down an average 21.4% over that period. However, Janus Henderson European Focus Fund (HFETX) is weathering the storm better than its peers, losing only 17.5% over the past year. It’s three-year annualized return is a whopping 14.8%.
Tom O’Hara, a Europe specialist at Janus Henderson, credits the fund’s better footing to its focus on large, competitive, multi-national companies with solid financial footing that just happen to be based in Europe. (Despite its current tilt toward large-capitalization companies, the fund has leeway to invest in firms of all sizes.)
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For example, luxury-brand producer and distributor LVMH Moët Hennessy Louis Vuitton is headquartered in France, but the company made nearly 80% of its revenue outside of Europe in 2021, with 26% generated in the U.S. The story is similar with many of the big names in the 53-stock portfolio, including food and beverage maker Nestlé, oil and gas giant Shell, and pharmaceutical company Roche, all of which earn a nice chunk of their sales outside of Europe. That’s good news, as sales denominated in stronger currencies—such as the dollar, which is soaring—translate into more euros when repatriated back home.
O’Hara concedes that Europe is currently a tricky place to invest, but he sees better days ahead. And valuations are relatively low. Stocks in MSCI’s EMU (European Economic and Monetary Union) index trade at an average price-earnings ratio of just under 12, notes strategist Ed Yardeni, down from a P/E of roughly 18 in mid 2020 and less than the 17.5 for stocks in the S&P 500 index. “We think the downside is more limited now. That makes for a much more favorable risk-versus-reward profile in Europe than in other regions,” says O’Hara.
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