European equity outperformance? Pigs might fly.

Portugal, Italy, Ireland, Greece and Spain (the PIIGS) are confounding commentators’ 2015 predictions with improving economic and stock market performance early in the year.

Shares correctly called a rally on European stocks ahead of the European Central Bank’s quantitative easing (QE) announcement (22 Jan, ECBonanza). European stock indices in Germany and all five PIIGS countries - including Greece - beat the FTSE 100 since the announcement in both dollar and local currency terms.

Since QE was announced the highest flyers are Portugal, Italy and Ireland. We take a closer look at the encouraging backcloth for the PIIGS in general and the individual countries specifically and the ways investors can get involved.

What next?

The big question for investors now is what next?

Woes in Greece are doing little to dampen investor enthusiasm on the continent at present. New money totalling €65 billion poured into European bond and equity funds in February, according to the latest data provided by fund tracker Lipper.

Inflows are anticipated for March too, though no data has yet been compiled.

Investors are looking to profit from QE as bond purchases from European Central Banks drive down yields and increase prices.

Spill-over benefits on corporate profits from a weaker euro are also expected to drive stock market valuations.

April was the first month in 48 (four years) that analysts upgraded earnings forecasts on European stocks, according to investment bank UBS.

Unorthodox monetary policies like QE have been credited with delivering more tolerable economic outcomes in the UK and US as overleveraged banks repaired their balance sheets and governments cut spending to deal with large fiscal deficits.

Europe has done it the hard way, until now.

Tight restraints on government borrowing for member states were combined with a central bank which - though operating a virtually zero interest rate policy - was highly reluctant to print money.

Outcomes from Europe’s QE remain difficult to forecast but Europe has arguably put in the hard yards with even Greece now running a primary government surplus.

This means that, excluding interest payments, it is spending less than it generates in tax. Neither the UK nor the US, despite spending reductions, can boast that.

Economist Reinhard Cluse at UBS tells Shares that, as well as QE, fiscal policy in the next two years across the Eurozone is expected to take on a less restrictive stance.

Loose monetary policy and less severe government cuts should bode well for economic performance and European risk assets.

Four consecutive quarters of improvements in credit availability and demand across Europe increases the potential for European corporations to borrow money, according to Cluse.

‘Leverage is close to 15-year lows and a move in net debt/equity back to the 15-year average would generate an additional circa €350 billion of free cash flow - equivalent to close to one-and-a-half years of dividends and share buybacks,’ he writes.

Credit conditions in core Europe have been strong for some time and the advent of QE should now free up more lending in peripheral Europe, though it is hard to be precise Cluse admits.

Team Europe

Optimists on Europe in the fund management community include Nigel Bolton, head of BlackRock’s European equity team. Macroeconomic momentum, relative valuations and positive corporate earnings revisions bode well for the year ahead, Bolton claims.

‘Despite the performance of European equities year-to-date, we remain positive on the prospects for the asset class,’ he writes in Blackrock’s second quarter Equity Barometer.

‘In January, we forecast a return of over 15% for 2015. With the improving outlook for the European economy there is further potential to see a return of over 25% for the year driven by an improved earnings outlook and further reduction in the risk premium.

‘Europe has been the underdog in developed markets for a number of years and, following the ECB’s action in Q1, is now finally beginning to show signs of economic improvement.’

Detractors from Europe’s faltering escape to its 2010 debt crisis are still pretty easy to find. Investors need to consider long and hard whether Europe’s revival has legs, according to John Bennett at Henderson, co-manager of the Henderson European Focus (GB0031860595) and Henderson European Selected Opportunities (GB003243798) funds.

‘I think the bull market is starting to look stretched, and without a step-up in revenue growth leading to earnings growth any rise in equity markets can only come from more expensive share prices as a ratio of corporate earnings - i.e. higher price-to-earnings multiples,’ he said in February.

‘In the near term, the European Central Bank is clearly seeking to underpin the Eurozone and we saw in 2012 that this can be very supportive. But equities were a lot cheaper back then and the cycle younger. I think 2015 could see a significant pick-up in volatility so investors should brace themselves for difficult markets.’

Also sounding the alarm bells, Hans-Jörg Vetter, chief executive of German real estate lender Landesbank Baden-Wurtemberg, warned current policies were creating ‘die Mutter aller Blasen,’ or ‘the mother of all bubbles’, according to a report in newspaper Frankfurter Allgemeine.

Weakening the euro sufficiently to make peripheral Europe could lead to inflation in an already strong core European bloc. Consumer prices in Germany gained 0.4% year-on-year in April despite dramatically weaker oil prices. (WC)

IRELAND

Among the so-called PIIGS territories, Ireland is our top pick for investors seeking to back the next big economic growth story in Europe.

It is possessed of a hard-nosed entrepreneurial culture and a handful of world-leading companies as well as a recovering domestic economy which offers significant upside opportunity for investors with a taste for a European bounceback, whether via shares in individual companies or broader exposure via ETFs.

Companies like CRH (CRH), Smurfit Kappa (SKG), Ryanair (RYA) and Kerry (KYG) are market heavyweights in their respective sectors and one might opine that in most cases, these companies could only have come from the Emerald Isle.

Unlike the other PIIGS, Ireland’s smaller more open economy probably has more in common ideologically with the traditional Anglo-Saxon lighter touch to market regulation. This is as much a question of history as geographical proximity but the upshot is that in Ireland, UK investors have the opportunity to take advantage of one of the most compelling growth rates in the Eurozone as well as a number of companies with a high-end exposure to international growth markets.

Among our top picks are global manufacturer of ingredients and flavours for the food and beverage industry Tralee-based Kerry for its consistent growth, its fair value and its steady pipeline of M&A opportunities. And cashing in the country’s reputation as the land of a hundred thousand welcomes, burgeoning hotel group Dalata (DAL:AIM) should continue to capitalise on the improving economic conditions over the coming years.

Troubled past

As the great financial crisis recedes further into history’s rear-view mirror, it’s easy to forget just how bad things were for Ireland in the dark and mutinous days of the 2010 bailout.

But to put that crash in some context; with an annualised rate of 7% per year, the Irish economy was one of Europe’s great success stories with 24 years of continuous economic growth between 1984 and 2007. Its success during this period was largely attributable to the strong development of high value sectors such as pharmaceuticals and software within the Irish economy.

Following the crisis and subsequent recession, the Irish economy implemented a tough austerity and reform agenda in return for receiving rescue funding from the EU and IMF. On 15 December 2013, Ireland successfully exited the bailout programme.

On the back of vastly improved risk sentiment, there has been a strong rebound in the performance of the Irish stock market. After exiting the bailout, the Irish economy began to grow again, with a 4.8% rise in 2014, making it the fastest growing economy at the time in the European Union. This was the result of growth in several sectors of the economy, including construction and tourism. As a result of the growth, the Irish national debt fell to 109% to GDP as well as the budget deficit falling to 3.1% in the fourth quarter of 2014.

The European Commission has forecast Ireland’s economy will grow 3.6% this year, which would make it the joint fastest economy in Europe along with Malta. The Irish economy is expected to grow by 3.5% next year, according to Brussels. While this is slower than the government’s spring economic forecast of 4% growth this year, the European Commission said that economic activity was expected to remain resilient in 2015 and 2016, as domestic demand took over net exports as the main growth driver.

There was also a note of caution from the Commission; due to the high level of private debt, the strength of private consumption remains uncertain and that could yet prove a significant headwind to ongoing Irish ebullience.

Debt as a proportion of household disposable income fell to just over 170%, down from a level of 198% in 2013, and its lowest level since late 2005. Falls to a 10-year low need to be set against a backdrop of the excesses of the Celtic Tiger years when both secured and unsecured personal lending in the Republic reached critical levels.

Brussels is predicting that the deficit, as a percentage of GDP, is to drop to 2.8% this year. This is significantly higher than the 2.3% forecast by the government but the 5 May exchequer statement points to an increasing likelihood of Ireland’s government deficit coming in below 2% of GDP in 2015.

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Staffing issues

Unemployment, running at 10%, remains an issue but compared to the likes of Spain, where the jobless rate remains stubbornly high at 24%, Ireland’s trajectory is towards falling unemployment and this has been underlined by the European Commission which said unemployment is expected to fall to 9.6% this year, and drop further to 9.2% next year.

This prognosis is certainly being supported by the Irish government’s most recent exchequer statement which shows PRSI (pay-related social insurance) contributions in April rising ahead of expectations.

Nevertheless, falling Irish unemployment needs (at least from a socio-economic point of view) to be put in the context of structural immigration which successive Irish government have both failed to address and implicitly used as a safety valve.

Political matters

The country is scheduled to have a general election by early 2016 and current polls put left-leaning parties like Sinn Fein and independents close to 50%. They are benefiting from austerity fatigue but it is unclear whether Sinn Fein and independent candidates will be able to translate this support into actual electoral success.

What does seem to emerge from any analysis of the Irish election in a momentous year in the history of the state (the centenary of the 1916 Easter Rising) is that even a left wing coalition is unlikely to depart too dramatically from the current script which has been focused on the export sector and attracting foreign direct investment (FDI).

There have been few calls to change Ireland’s 12.5% corporation tax rate, even from left-leaning parties. Davy Research’s Conall Mac Coille points out, not unreasonably, that ‘no Irish government is likely to undermine the clear success story of attracting FDI and building a cluster of ICT (Information and communications technology) multinational companies operating in Ireland.’ (SFl)

Get exposure via ETFs

One way to play the recovering Irish economy is via London-listed exchange-traded fund WisdomTree ISEQ 20 UCITS ETF (ISEQ), which was launched on 17 April 2015 with a total expense ratio of 0.49%. The physically-backed product seeks to track the price and yield performance of the ISEQ 20 Index, representing the 20 largest and most liquid equities quoted on the Irish Stock Exchange.

The investment case for buying an ETF that tracks the ISEQ 20 is compelling. Over the last six years the index has outperformed the UK’s FTSE 100, Germany’s DAX and the broader Euro STOXX 50. If you had invested €1,000 in an ETF tracking the ISEQ 20 in 2009 you would have grown your money to over €3,000 today. The same investment in the FTSE 100 would have grown to €2,500.

The ISEQ 20 is expected to keep outperforming its European peers and has yet to reach and climb past its 2007 highs. The greatest profit drivers are expected to come from consumer and industrial stocks, which will benefit directly from structural changes within the private sector which should boost household spending and corporate investment.

Despite the index’s potential for continued outperformance Irish equities still represent good value and many are discounted versus their European peers. The price to earnings multiple of the ISEQ 20, based on 12 month forward earnings, is 17.4 compared with 23.2 for the FTSE 100, 22.0 for the Euro STOXX 50 and 20.0 for the DAX 30. The ISEQ 20’s price to book value is lower than the UK and Germany and it offers a return on equity of 11.5%.

The sector weightings and profit distribution of the Irish equity market have changed markedly since the financial crisis. In 2007 financials comprised 43% of the index compared with just 15% at the end of 2014. The greatest sector exposure is currently materials, making up 27.9% of the index. This is followed by consumer staples, industrials, financials, consumer discretionary and energy.

The reduction in financials has been caused by the nationalisation of Allied Irish Bank and the government taking significant equity stakes in Irish financial institutions such as Bank of Ireland (BKIR) - both of these banks were major constituents of the ISEQ 20 in 2007.

Operating profit generation leading up to the 2008 credit crisis was also heavily skewed towards financials, which contributed an estimated 57% to Irish equity market profits. Following the restructuring of the Irish economy financials now contribute 40% of profits while non-financial sectors, predominantly consumer and industrial stocks, account for 60% of profits. The top 10 holdings in the index are CRH, Ryanair, Bank of Ireland, Kerry, Smurfit Kappa, Aryzta (ARYN:VTX), Glanbia (GLB), Dragon Oil (DGO), Paddy Power (PAP) and Kingspan (KGB).

Another ETF giving exposure to Ireland is iShares MSCI Ireland Capped ETF (EIRL:NYSEARCA). The product tracks the MSCI All Ireland Capped Index which has holdings in 25 Irish stocks including CRH, Kerry and Bank of Ireland. The fund has returned 79.7% since it was launched in May 2010. (EP)

SHARES’ KEY STOCK PICKS TO PLAY IRELAND

Dalata (DAL:AIM) 263.02p

Dalata claims to be Ireland’s largest hotel operator. The group has been through a transformational period since listing on the Irish and London stock exchanges in March 2014. It acquired eight individual hotels in Belfast, Dublin, Derry, Galway and Wexford for a total €106 million and completed the reverse takeover of Moran Bewley’s hotel chain for €453 million.

The Moran Bewley acquisition significantly increases Dalata’s position in the Dublin market - over 55% of the rooms in the portfolio are based in the capital - and it gives a presence in key UK cities such as London, Manchester and Leeds. Dalata says it has identified significant opportunities to increase revenues and implement savings through synergies across all the acquired hotels.

Dalata performed strongly in 2014 as it benefited from the continued strong growth of the Dublin market and the start of a recovery in the cities and towns outside of Dublin.

Dermot Crowley, deputy chief executive - business development & finance at Dalata, says: ‘The recovery in Dublin started in 2011 after a bad fall in revenue in 2009 and 2010. We’ve had four years of RevPAR (revenue per available room) growth of between 8% and 10%. Last year the recovery spread to other cities like Cork and Galway - they had a strong 2014 and a strong first half this year.

‘The main reason for the recovery is there has been lots of investment in infrastructure projects, such as Dublin’s new convention centre and the renovation of the Aviva rugby stadium. In addition Google (GOOGL:NDQ), Facebook (FB:NDQ) and LinkedIn (LNKD:NYSE) are all adding a lot of jobs in Dublin which generates room rates for us.’

Dalata’s pre-tax profit rose from €73,000 to €6.3 million in 2014 while revenue grew by 30% to €79 million. RevPAR increased by 15.7% primarily due to a 13.4% increase in the average room rate.

Trading in the first quarter of 2015 was ahead of expectations, leaving Dalata well positioned to capitalise on the improving economic conditions over the coming years. According to PwC, Dublin will experience the highest RevPAR growth rates across 20 cities surveyed with inflation of 8.8% this year and 8% next year. London, where Dalata has two properties, is expected to see RevPAR growth of 4.6% in 2015 and 4.7% in 2016.

‘The favourable exchange rate has helped and on top of that the economy is expected to grow by 3% per annum over the next few years. I’m confident we’ll see a steady recovery over the next two to three years,’ says Crowley.

The group’s main focus for the next 12 months is integrating the recently acquired assets but Crowley says this doesn’t mean it wouldn’t make another acquisition. ‘There are lots of distressed assets that are good value,’ he says.

Davy is forecasting pre-tax profit to grow four-fold to €26.6 million in 2015 and then rise to €38.8 million in 2016. (EP)

Kerry (KYGA) €64.84

Growth and income investors should snap up Ireland-based ingredients-to-packaged foods play Kerry. Investment bank Berenberg believes this is an exciting time to be invested, ahead of higher levels of acquisitions and signs of industry adaptation towards Kerry’s business model.

Kerry is a global manufacturer of ingredients and flavours for the food and beverage industry, as well as a supplier of branded and private-label packaged foods in the UK and Ireland. Berenberg believes the hungry consolidator is well advanced with several mid-sized acquisitions, from which Kerry can rapidly integrate and extract synergies.

The Dairygold spreads-to-Richmond sausages maker operates in some sluggish end-markets, yet it is outperforming peers through a focus on growth categories and innovation. Tellingly, the industry is increasingly crying out for the value-added services Kerry offers - it is locked into customers’ supply chains and helps them reduce both costs and time-to-market for new products. Moreover, following recent disposals, Kerry’s consumer foods volumes are thought to be back in positive territory.

Berenberg forecasts a 10% three-year earnings per share compound annual growth rate for Kerry, though this factors in nothing from potential acquisitions. With a €70 price target implying attractive 12.5% upside, Berenberg conservatively forecasts 11.2% improvement in adjusted pre-tax profit to €618 million this year, ahead of €687 million in 2016.

When the group released its interim management statement for the quarter ended 31 March 2015, Kerry reported a 2.5% growth in business volumes as well as a 40 basis points increase in group trading margins. (JC)

SPAIN

Spain’s IBEX index is up 8.9% year-to-date in local currency but because of a weaker euro is up only 4.2% in sterling terms. That’s just shy of the 4.9% on the FTSE 100 so far this year.

Top-heavy with financials - the sector makes up nearly half the IBEX - and containing only 35 stocks, investors should tread carefully when navigating Spanish equities.

Exchange-traded fund Amundi ETF MSCI Spain (CS1) is one way to get exposure, although investors must note a heavy exposure to the financial sector.

Spain’s global banks Santander (BNC) and Banco Bilbao Vizcaya Argentaria (BBVA:BME) are attractive propositions, with leading positions in Spain and international exposure to Latin America in particular. Yet both have needed to raise substantial amounts of capital over the last five years and investors are right to question whether more skeletons are likely to fall out of the cupboard.

Fund manager Dean Tenerelli, manager of a number of European equity funds including T Rowe European Ex-UK Equity (LU0938199691) says banks operating in consolidated markets like Spain’s are particularly attractive, according to an interview with Citywire in April.

Smaller Spanish banks have struggled more than their larger counterparts. They have been forced to merge or receive government bail-outs after being heavily exposed to the country’s real estate bubble.

Tenerelli sees value in Bankia (BKIA:BME), which was formed by the merger of seven regional savings banks in 2010, and subsequently required a €19 billion government bail-out. It returned to profitability in 2014 and is one of Tenerelli’s fund’s top 10 investments.

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Bricks and mortar

A long overdue recovery in home prices could be a boost for banks. The value of Spanish residential property increased this March for the first time since 2007 and some fund managers believe banks are a good way to gain exposure to any further improvement.

Playing the same theme, Tenerelli also has 2% of the fund invested in Inmobiliara Colonial (COL:BME), a Spanish property development and rental company. It has close to €600 billion in property assets which it manages and develops.

Predictably at a time of deflation and fiscal austerity, value plays are in high demand on the Spanish stock market. A peak-to-trough decline in per capita GDP of close to $27,000 in 2008 to $24,600 for 2014 has forced down household expenditure.

Stock picker Mark Page, manager of the Artemis European Opportunities Fund (GB00B6WFCP30) is keen on Dia (DIA:SM), a 7,000 store Spanish discount retailer, as an investment with defensive qualities. The business was spun-off from France’s Carrefour (CA:EPA) in 2011 and has more than doubled in value since. ‘The reason we bought it is it’s a discount play,’ explains Page. ‘People will buy cheaper food in Dia rather than going to a more expensive store. It was a play on tighter consumer budgets and got hit because of a bout of food deflation and we suffered from that.

‘The Spanish recovery is going better than people expected. Dia is a much slower burn that the big Spanish property companies coming to market or distressed banks.’

Investors can also play the rebound in the Spanish economy through London-listed retailers that have flourished during the downturn, yet have also captured shoppers’ hearts and wallets, weaning them on a bargain during times of austerity.

Primark, the discount fashion chain owned by running Shares Play of the Week Associated British Foods (ABF), continues its Europe-wide expansion push, with ABF’s half-year results (21 Apr) statement flagging strong performances in Spain as well as fellow ‘PIIGS’ countries Portugal and Ireland.

Another of our key selections, Europe’s leading single price retailer Poundland (PLND), reports pleasing progress with its trial stores in Spain, five at last count including a store in Madrid. Like its shops in the Republic of Ireland, these trade under the ‘Dealz’ brand.

Van hire outfit Northgate (NTG) is another way to play improving fortunes in the country. Spain represents roughly one-third of sales and underlying operating profit at the £837 million business. Shares flagged Northgate as an opportunity to gain exposure to improving commercial activity in Europe earlier this year (Agenda, 29 Jan '15). (WC)

ITALY

Italy is changing and investors should take notice. The country is undergoing structural and parliamentary reform designed to make it more competitive following decades of disappointing economic growth. Those monitoring the country believe that a recovery is on the way thanks to the reform agenda sweeping through political corridors from Turin to Naples.

‘Italy is depressed, but it is about to boom,’ says James Sym, a Europe-focused fund manager at Schroders (SDR).

Stephen Macklow-Smith, a manager of JPMorgan European Investment Trust (JETG) is also upbeat, but warns that Italy is only in the early stages of economic growth. ‘A lot of the institutional obstacles to reform and progress are being removed and the Italian economy in the next five to 10 years has the capacity to surprise,’ he says.

The crux of the problem is that Italy’s economy has been highly regulated since the constitution was written after the Second World War. This has led to successive governments being elected without the power to enforce the reforms needed to build momentum in the economy and avoid defaulting on its huge debt, which stood at 132.6% of GDP in 2013.

Italy’s problems have increased after it was swept up in the downturn that followed the financial crisis, which has led to lower production and high inflation. The economic environment has continued the trend of growth rising less than the size of the interest it pays on debts.

Reform is needed and former Mayor of Florence Matteo Renzi is leading the charge. Renzi is not seen as a part of the political establishment and so is bringing confidence to Italy with his shake-up of the system.

His most significant move is to ensure that those winning a general election have a mandate to implement legislative change for the first time since the Second World War.

Renzi has targeted the labour laws to reduce employee rights. It has typically been difficult and expensive to sack people in Italy if, say, a company needs to downsize. This can deter companies from hiring people. In December 2014 unemployment in Italy had fallen to 12.9% from 13.3%, a sign that consumer confidence could start to rise.

Other moves have seen local governments lose some of the powers they once had to stand in the way of investment and infrastructure progress. Privatisations are also on the agenda which could remove large state-owned stakes in local utilities in the next three years.

The International Monetary Fund (IMF) forecasts Italy’s GDP growing 0.5% in 2015 rising to 1.1% in 2016.

Macklow-Smith says that equities have underperformed in Italy and several sectors have attractive growth prospects. ‘There is a following wind behind pretty much everything,’ Macklow-Smith says. ‘Italy’s competitiveness should start to improve from this point. There will be opportunities in quite a lot of areas.’

Italy is known for fashion, manufacturing, agriculture and financial services. The difficulty for investors looking to gain exposure to the market is that there are few large domestic stocks. The best way to play the Italian economy is to buy financials, according to Sym. Intesa Sanpaolo (ISP:IT) is one such business being one of the highest capitalised and most profitable banks in the country.

Banking is an industry that is changing with Renzi altering their shareholding structures into joint stock companies to encourage mergers that will reduce the country’s overbanked problem.

Other options to gain exposure to the market include funds with Schroders European Opportunities (GB0031093353) worth a look after beating its benchmark by a modest 0.4% in the past three months - its first beat in three years.

It’s not just about reform. Economic growth in Italy will also benefit from an export-boosting weak euro and a low oil price, which Sym estimates adds around €750 to each household in the country.

‘For a lot of people Italy has not been an area that they have focused on but that is changing,’ Macklow-Smith says. ‘When you get these moments of political change you need to pay attention.’ (MD)

PORTUGAL & GREECE

It’s almost a year since Portugal exited its Eurozone bailout following three years of austerity - the price of €78 billion in loan guarantees from the European Union and International Monetary Fund.

The latest forecasts from the IMF suggest the company will see GDP growth of 1.6% in 2015 and 1.5% in 2016. This is an improvement on the 0.9% posted in 2014 and the IMF’s previous projections for growth of 1.2% and 1.3% but lags behind the performance of most of the other PIIGS.

The government this year made an early repayment of part of its IMF loan after borrowing costs fell and the European Central Bank announced its quantitative easing plan. A key milestone for the country could be the restoration of its investment-grade credit rating which would help reduce borrowing costs.

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Political stability will be important. Portugal will hold elections on a date to be set between 14 September and 14 October 2015. Portuguese prime minister Pedro Passos Coelho, leader of the ruling Social Democrats, and vice premier Paulo Portas, leader of junior coalition party CDS, said on April 25 they were proposing keeping the coalition for the next election.

Investors are not blessed with tonnes of options in terms of investing in Portuguese shares directly, although Hargreaves Lansdown will allow you to trade a selection of stocks on the Lisbon Stock Exchange. For those with a higher tolerance for risk it is possible to trade Portugal through spread bets and contracts for difference (CFDs). There are no Portugal specific funds or exchange-traded funds - although some of the funds we discuss later in this article have exposure. (TS)

An apparently improving economy - the International Monetary Fund forecasts GDP growth of 2.5% for 2015 and 3.7% in 2016 - cannot mask the elephant in the room. The potential for Greece to exit the eurozone, a looming crisis which has been dubbed ‘Grexit’, cannot be ignored in any analysis of its economic prospects.

The anti-austerity Greek government says it will stick to the ‘red line’ promises it made to its electorate and will not make concessions to creditors. The latter have demanded cuts in spending, including plans to scale back the civil service and privatisation of state assets, in order for Greece to continue receiving loans.

But Greece's ruling left wing Syriza party, led by Alexis Tsipras, was voted in earlier this year on promises to ease up on the highly unpopular austerity measures with increases in the minimum monthly wage and a job creation programme.

In fact the European Commission has slashed its own growth forecast for 2015 from 2.5% to 0.5% and expects debt as a proportion of GDP to hit 180% from an earlier projection of 170%. Without a deal between Greece and its creditors the future looks fairly bleak.

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For brave contrarians who spy a value opportunity amid the current turmoil there are a limited number of ways to get involved.

There are no exchange-traded funds or traditional funds which offer pure Greek exposure although there are a number of stocks with a standard listing through the European Quoting Service on London Stock Exchange’s Main Market.

These include Alpha Bank (0OKL), Bank of Greece (0KVA), Hellenic Petroleum (0K9U), Hellenic Telecom (0FIZ) and National Bank of Greece (0QEH). On AIM, travel and leisure stock Minoan (MIN:AIM) is a play on the Cretan tourist industry. (TS)

Funds for broader PIIGS exposure:

European Assets Trust (EAT) £11.22

Investing in small and medium-sized companies in Europe - excluding the UK - European Assets Trust (EAT) boasts an excellent track record. The investment trust - offered by F&C Asset Management (FCAM) - has beat its benchmark on a one, three and five-year view.

Despite this stellar performance it is actually at a modest discount to its net asset value per share of £11.28 and trades on a historical dividend yield of 5.2%. Crucially the £286 million cap is also a good way to play the PIIGS (Portugal, Ireland, Italy, Greece and Spain) with a healthy allocation towards Irish stocks in particular. As of 31 March 2015 19.3% of the portfolio was invested in Irish equities, 12.4% in Italian shares, 9.1% in Spanish and 3.2% in Portuguese.

Among its top 10 holdings are Italian asset manager Azimut (AZM:BIT). In March Azimut saw its fortunes improve on the back of positive asset inflows and a strong set of quarterly results. In the first quarter as a whole the group reported net inflows in excess of €1.3 billion. Other key investments are performance nutrition, cheese and ingredients production specialist Glanbia - based in Kilkenny, Ireland, Dublin-headquartered building supplies firm Grafton (GFTU), Ireland’s leading ferry operator Irish Continental (ICGC) and the national postal service of Portugal CTT Correios de Portugal (CTT:ELI).

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The trust has been managed by Sam Cosh since 2011 although it can trace its inception back to 1972. Cosh has more than 10 years of investment experience and joined F&C in 2010. The emphasis is heavily on stock selection and Cosh looks for companies that can grow within their niche, regardless of any problems in the economy as a whole and believes in limiting the risk of losses by prioritising quality businesses with strong balance sheets.

While the performance of the fund is not reliant on wider economic performance there is little doubt an improvement in the fortunes of European economies, driven by a weak euro and the European Central Bank’s quantitative easing programme, filters down to the small and mid cap stocks in the portfolio.

In his latest monthly commentary Cosh notes the improving mood in the eurozone. He says: ‘Sentiment towards Europe has clearly improved this year as investors have become more optimistic on the region's recovery potential, in contrast to the US and emerging markets where prospects appear to be marginally deteriorating.’ Ongoing charges on the fund total 1.33%. (TS)

Henderson EuroTrust (HNE)

Manager: Tim Stevenson

Share price: 922p

NAV: 907.4p

Premium: 0.85%

Yield: 1.95%

AIC Sector: Europe

Benchmark: FTSE World Europe ex UK

Launch date: 1992

Investors seeking to play a broader European recovery that includes the rebound of the 'PIIGS' might look to put money to work with Henderson EuroTrust (HNE). With a pan-European focus, the £188 million cap has been managed with distinction by Tim Stevenson since 1994. And under his stewardship, it is ranked among the top performing trusts in the European equities sector over the past decade, having established a track record of superior and consistent performance over time.

Boasting total assets of £198 million as of the end of March, the trust invests in mid and large cap companies from Western Europe, excluding the UK. These are usually companies that Stevenson regards as undervalued in comparison to growth prospects, or on account of significant changes to their management or structure. The trust aims to achieve a superior total return from a focused portfolio of around 50 high-quality, attractively valued European growth companies which are both consistent and reliable performers.

With a proven long-term buy and hold approach, Stevenson's investment style is growth-biased, though he won't pay overpay for growth stocks. It is also important to note that he scours Europe for firms able to consistently grow total return for their shareholders year in, year out, including the dividend. So while the trust is not an income-oriented portfolio, it has a good track record of steadily increasing the shareholder payout each year.

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Henderson EuroTrust's largest geographic allocations are to France and Germany, though it also offers a play on the improving 'PIIGS' including Italy and Spain and to a lesser degree Ireland. Crucially, the trust is geared into the improvement across European economies, given its broad spread of investments including financial and cyclical names, as well as resilient growth companies in the health arena, where the ageing population represents a structural driver.

Prospective investors are purchasing an exposure to the likes of expansionist clothing retail giant Inditex (ITX:SM), the Zara and Massimo Dutti brand owner which Henderson EuroTrust has owned since its IPO in 2001. As at 31 March, the top 10 also includes the likes of German delivery and transport group Deutsche Post (DPW:GR), French catering-to-facilities management group Sodexo (SW:FP) and defensive Swiss pharmaceutical giants Roche (RO:SW) and Novartis (NOVN:VX). Other key holdings include the German healthcare provider Fresenius Medical Care (FME:GR), a global leader in kidney dialysis services which also makes equipment used in the treatment of dialysis patients. (JC)

European Investment trust (EUT)

Share price: 825p

Discount to NAV: 8.6%

Yield: 1.9%

Capital growth over the long term is the key objective of this continental Europe-focused investment trust.

Established in 1972, European Investment Trust (EUT) has delivered solid returns since Dale Robertson took charge in 2010, with annualised performance of 11.3% on a net asset value basis. That’s slightly ahead of its FTSE World Europe ex-UK benchmark, which delivered 10.6% annually, according to Morningstar data.

Key positions include PostNL (PNL:AMS), the Netherlands’ mail business, which also has a stake in UK challenger outfit Whistl’, previously known as TNT Post.

UK incumbent provider Royal Mail (RMG) pushed for a competition review to prevent its rival cherry picking profitable services. Royal Mail is required to deliver post across Britain six days a week at standard prices which requires a high fixed cost base. Whistl serves customers
in densely populated city locations, where delivery is cheaper, and offloads its long-range mail onto the Royal Mail delivery network.

Calls for an investigation were shut down by communications regulator Ofcom in December 2014.

PostNL is the fund’s largest position at 3.7%. Swiss pure play asset manager GAM (GAM:SWX) is the second-largest holding at 3.3%. As well as its GAM business, it also owns the well-respected Julius Baer (BAER:VTX) asset management business. Another financial services player, French multinational bank BNP Paribas (BNP:EPA) is the third-largest pick at 3.3%.

Financial services are well represented in the fund’s top 10 and combining banks, asset managers and insurers make up around 23% of the fund’s assets.

Next is industrial services at 15.5%, which includes Italian cabling outfit Prysmian (PRY:BIT).

Health care is becoming an increasingly popular trade because of its regulated cash flows supported by an ageing population requiring more treatment. Fund manager Robertson has been building the fund’s exposure to health care, increasing its weighting from 5.1% in September 2013 to 14.1% now.

A combination of improving sales growth prospects and reasonable valuations makes the sector an attractive investment opportunity, Robertson writes in EUR’s November 2014 portfolio update.

Swiss-listed Novartis and Paris-listed Sanofi (SAN:EPA) are Robertson’s top picks.

Primarily investing in core Europe, the fund has had mixed success dabbling in peripheral countries so far.

‘Our investments in Portugal proved to be something of a curate’s egg, providing both our best and worst contributing stocks for the year under the review,’ Robertson writes.

Retail bank Banco Espirito Santo (BES:ELI) produced big gains as Portugal’s economy recovered and Robertson decided to sell down the stake during 2014.

Portugal Telecom (PTC:ELI) lost ground after it ‘disclosed cash held on its balance sheet was not in fact cash but an investment in short-dated commercial paper of a just declared bankrupt financial holding company’.

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Improving economic performance in Europe and advancing stock markets means investors should heed caution for the year ahead, Robertson adds.

‘Since our appointment to manage the company’s investments on 1 February 2010, European markets have seen strong gains and the portfolio has outperformed the relevant stock market index against which it is measured,’ Robertson writes.

‘Portfolio strategy for much of this period has been geared towards the prospect of economic recovery. As this is eventually priced in to equity market valuations, it is likely that the portfolio will continue to travel in a more defensive direction.’

The fund trades at an 8.6% discount to net asset value. (WC)

GLG Continental Europe Fund (GB00B0119370) 312.2p

The GLG Continental Europe Fund (GB00B0119370), managed by Rory Powe since 1 October 2014, has returned 221.7% since it was launched in June 1998 and has an annualised return of 7.3%. The fund, which has assets of £88 million, aims to achieve above average long-term capital growth by investing in companies listed on European stock exchanges.

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Powe’s aim is to make an average absolute return of 10% per annum via a bottom-up, stock picking approach to investing. Since he started running the fund Powe has cut the number of positions from 200 to around 30. He looks for companies which have a strong market position and a focus on research and development.

The fund has a 12.8% exposure to Ireland, behind Denmark at 15.1%. Italy and Spain also appear in the list of top 10 geographical exposures at 10.5% and 3.6% respectively. The fund’s top 10 holdings include Pandora (PNDORA:CPH), Ryanair, Geberit (GEBN:VTX), Essilor International (EI:EPA) and Abcam (ABC).

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In March the fund benefited from a rising market and the favourable contribution of Ryanair, which having paid its special dividend in February saw its share price rise thanks to the prospect of flying 100 million passengers in the coming year to March 2016 at record profitability per passenger. Ryanair has a robust balance sheet which saw it raise €850 million via an eight year bond.

Two other core holdings, Yoox (YOOX:BIT) and Xing (O1BC:ETR), have also been stand-out performers. Italy-based Yoox, which sells off-season luxury goods, announced in March that it had agreed an all-share merger with London-based Net-A-Porter which would create a powerhouse in online luxury. Xing, a German online network for white collar professionals, saw strong traction in its subscription numbers and 39% growth in its e-recruitment business.

The fund’s ongoing charge is 1.78%. (EP)

JPMorgan European Investment Trust (JETG) 253.5p

Italy is likely to be a feature of JPMorgan European Investment Trust’s (JETG) portfolio in the coming years. Investment manager Stephen Macklow-Smith has the country on his radar and expects the economy to ‘surprise’ in the coming years as the prime minster’s reforms kick in.

Launched in 2006, the £210.8 million fund targets equities listed across continental Europe. The limited economic growth recorded by Italy in the past 15 years has seen only 4.7%, or £9.9 million, of the fund is invested in the country. This makes it the ninth largest geographic allocation for Macklow-Smith and his co-manager Alexander Fitzalan Howard.

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Europe has struggled in the past eight years under the strain of huge debts and low growth, but JPMorgan European Investment Trust has generated large returns in the past five years. However, its performance has fallen slightly short of benchmark returns.

Over six months it has returned +13% compared to +15.5% by the benchmark over the same period. Over a year the fund returned +8.9% compared to +12.5% overall. Over three years the fund closes the gap at +82% to the benchmark’s +86.4%.

An initial 0.45% fee is charged for those wishing to use the fund to access any upturn in growth across the continent. (MD)

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British Empire Trust (BTEM)

Share price: 544p

Discount to NAV: 10.1%

Internationally-focused investment trust British Empire Trust (BTEM) is not a pure-play European asset manager but it does have a good record on the continent.

Europe makes up 40.7% of its portfolio and BTEM’s bold call on France-based media company Vivendi (VIV:EPA) has paid off.

Sales of Vivendi’s divisions in 2014 helped the fund exit the investment after receiving special distributions and a reasonable profit.

BTEM is an investor in other investment trusts, conglomerates and holding companies. One of its biggest European holdings in this category is Belgium-listed Groupe Bruxelles Lambert (BBLB:EBR). GBL owns stakes in oil and gas producer Total (FP:EPA), French aggregates producer Lafarge (LG:EPA) and distiller Pernod Ricard (RI:EPA).

Another European holding at BTEM is Sofina (SOF:EBR), also a Belgian holding company. It owns a portfolio of listed and private-held businesses in Europe.

Performance at BTEM has been pedestrian over the last five years, averaging 7.8% annualised on a net asset value basis versus 11.4% on the FTSE World Index.

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The fund’s value approach - which has been underperforming relative to momentum strategies - has detracted from performance, as well as its greater exposure to Europe relative to the US. This could change if European equities begin to deliver.

Key risks involve the failure of its investments in holding companies to return to net asset value and its exposure to more illiquid privately-held assets within some of those investees.

Its exposures to core Europe, the Americas (25.5%), Pacific Ex-Japan (12.1%) and the UK and Japan mean it is less of a direct play on Europe’s periphery. (WC)