This is according to Mark Page (pictured) and Laurent Millet, who head up the Artemis European Opportunities fund. The managers recognise the fact that dividends are now much more important for European investors than they were a year ago, but warn the concentration in a small number of blue chips such as InBev, Nestle and Novartis is raising single-stock risk to unacceptably high levels.
For example, Nestle is held by 32.47 per cent of funds in the IMA Europe ex UK sector, according to data from FE Analytics.
"Investors are still chasing these names because they want the dividend yield," Page said. "At the margin, they are looking a little bit expensive."
"Many positions we held a year ago; we think investors are overpaying for that growth," Millet added.
They believe investors can find better value and long-term returns elsewhere.
Page and Millet focus further down the market cap scale to find companies they believe are undervalued, which they say can deliver high returns if investors are willing to hold tight through market movements.
"We are currently tracking the market," Page said. "And I’m happy with that because right now we’re tracking the market without holding names that everyone else seems to be buying."
The manager adds that his fund is strongly positioned to benefit from an improving macro environment in Europe, but adds it is also full of names that understand how to make money in difficult times.
Page highlights French TV company M6 which, while domestically driven, has a strong and profitable business model.
"Companies like these got so used to operating in difficult environments, so they have got their cost structures under control," he said.
"We like buying companies that can generate free cash-flow in a very difficult environment."
The pair are also starting to pick up utilities, which were hit hard in the crisis, and companies they had steered clear of a year ago.
One holding they have recently added to the £38m fund is EDF, because they expect French energy prices to converge towards German ones.
Millet said: "The French government at least has a vested interest in the profitability of the company."
"They need money and the easiest way to get money is to have these companies paying a dividend. In this case, the shareholders’ interests are aligned with the government’s interests."
Page says that more and more attractively valued opportunities are starting to surface in Europe, although it is getting more difficult to buy the highest-quality companies, such as InBev, at cheap prices.
For investors looking to increase their European exposure, he recommends drip-feeding savings in to a fund.
This is how Page and Millet both invest in their own portfolio.
"I put in regular savings amounts because I have no idea what one of those tranches will be at the right time," Page said.
Since launch in October 2011, the fund has made 26.73 per cent, compared with 19.58 per cent from the sector.
The fund has also beaten its benchmark – the FTSE Europe ex UK index – which has made 17.4 per cent over the period.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund has a nominal yield of 0.66 per cent, according to FE Analytics.
Artemis European Opportunities is a high-conviction portfolio with a maximum of 60 stocks. Page says the team currently has 58 holdings which are pretty evenly spread across the continent.
However, he says they have yet to find opportunities in debt-laden Greece.
Instead, the managers are backing Swiss pharmaceutical giant Roche, French Bank BNP Paribas and Spanish telecommunications company Telefonica in their top-10 holdings.
The fund requires a minimum investment of £1,000 and has ongoing charges of 2.26 per cent.
Hargreaves Lansdown’s Mark Dampier says the fund does not yet have a long enough track record to gauge the effectiveness of the managers’ style.
While he is a fan of Artemis funds on the whole, he says they are facing a particular challenge breaking into the European market.
He says that there are a number of other solid managers in Europe – such as Jupiter’s Alexander Darwall and Henderson’s Richard Pease – who have performed well in a variety of market conditions.
"You’ve already got lots of good managers in Europe. There are only so many funds you can support," he said.