From 22-25 May , 46m European voters will go to the polls to decide who will control the only directly elected institution of the European Union with many analysts predicting a surge of votes for ‘protest parties’, particularly in peripheral European countries such as Greece and Italy.
Should the parties of the incumbent governments of Italy and Greece suffer heavy losses to protest votes in the Europe-wide elections, their leaders could lose their political mandates. This could cause economic reforms to be destabilised, spooking financial markets, Gaskell says.
“In this event a market correction [across European equities] would be likely,” she said.
Gaskell manages the fund, alongside Andreas Zoellinger. He says a market correction would present a good buying opportunity, both for the fund and for investors in general as it would be a short term setback in the on-going eurozone recovery.
Gaskell has managed the £356m fund, alongside Andreas Zoellinger, since its launch in May 2011.
Over this period, which includes the both up and down markets, the fund has maintained outperformance of its IMA Europe ex UK sector. Since its launch it has returned 42.61 per cent, the best return in its sector.
By comparison, the average return in the sector was 21.89 per cent whilst the fund’s benchmark – the FTSE World Europe ex UK index – rose 18.84 per cent.
Performance of fund, sector and benchmark since launch
Source: FE Analytics
Gaskell says she is otherwise sanguine on the continuing recovery of the eurozone following the 2011 sovereign debt crisis.
“We have seen early signs of a recovery in the European consumer sector, with improving business confidence and falling unemployment, which has been positive for European equities.”
She says she expects dividend growth in Europe to be robust for the remainder of 2014 and into 2015 and more M&A activity
“Financial discipline remains strong in Europe and many companies have repaired their balance sheets to such an extent that there is capacity to return capital to shareholders via special dividends, notably in the insurance sector.”
“In the fund, whilst we have avoided the areas of the European market where dividend risk is higher such as with banks, our investments in infrastructure and real estate have benefitted both from an improving European economy and lower political risk.”
She says despite the political risk posed by the elections, peripheral Europe has become a more attractive destination to add companies than northern Europe.
Zoellinger says an increased focus on stocks with good capital discipline and dividend sustainability is becoming increasingly important for investing in Europe.
Both Italy and Greece have some of the worst statistics for employment, particularly amongst young people, with polls suggesting stronger support for non-mainstream parties amongst young people in the two countries.
Italy will go to the polls on May 25 with results potentially upsetting the country’s current prime minister Matteo Renzi’s mandate for a series of radical economic reforms aimed at its labour market, that so far have not been implemented. Italy has some of the worst levels of employment across the European Union.
The unelected Renzi – appointed in February 2014 – is at risk mostly from the populist and anti-establishment comic Beppe Grillo.
Renzi came to power in February after a party coup which forced out his predecessor Enrico Letta.
Since he came to power the Italian stock markets took a boost but have since fallen in the run up to the European elections, remaining largely flat overall.
Performance of index since 22 February
Source: FE Analytics
Greece’s coalition government has a tiny majority of just two seats in its 300 seat parliament making a defeat of any of its constituent parties in the election a threat to its existence. Gaskell says it could also trigger a national election in the country.
The country’s prime minister Antonis Samaras has tried to woo investors with a recent bond auction of Greek government debt, the first for four years.
Whilst the auction of the government debt was oversubscribed the country country’s stock has been falling of late, rocked by the political uncertainty of the government’s precarious majority in the face of the elections.
The MSCI Greece has fallen 15.7 per cent since the bond auction on 10 April.
Performance of index since 10 April 2014
Source: FE Analytics
Neil Dwane, chief investment officer equity Europe for Allianz Global investors says investors will be and markets will keenly anticipate the vote and its effect on the dynamics of European Union decision- making.
However, he says regardless of outcomes there is little threat to the overall recovery posed by the elections.
