Just because there's a sovereign debt crisis doesn't mean there's no opportunity in Europe, especially if investors are selective and defensive.
Invest in Europe? Now!?Skip to next paragraph
These days, the idea may seem as inspired as lighting a match to a paycheck. Fund investors appear to be fleeing the debt-troubled continent.
But all that tumult and fear can mask opportunities. For market-savvy investors who want to keep a hand in Europe, there are ways to play the still-economically vital region, some investors and market pros say.
"As long as you are selective and take a two-year investment time horizon, you can find interesting investments," says Stan Pearson, head of European equities at Standard Life Investments, based in Edinburgh, Scotland. "Valuations are quite moderate, and you don't have to pay up" to buy the shares of world-class companies.
Of course, venturing into Europe with its still growing sovereign debt woes requires fortitude. Last year (through Dec. 14), bond funds targeting Europe saw net outflows of $27.7 billion, according to EPFR Global, a Cambridge, Mass., firm that tracks fund flows. European stock funds experienced $11.2 billion in outflows (minus Germany, where the outflow was more than $30 billion). So where do you invest when others are pulling out?
Here are five possible strategies:
1. Buy selected European stocks. Collectively, eurozone stock markets fell almost 20 percent in US dollar terms in 2011. That trimmed the stock prices of world-class European companies that do sizable business outside the eurozone, points out Mr. Pearson. Among those he likes: Ryanair Holdings, based in Dublin, Ireland, a provider of discount air travel; ASML, based in the Netherlands, a world leader in producing machines for making semiconductors; Saipem, headquartered in Milan, Italy, an international provider of oil and gas construction and drilling services; and CFAO, based in France, a major distributor of autos, pharmaceuticals, and other industrial products in Africa and in French overseas territories and communities.
Among the European companies he likes outside the eurozone: Denmark-based Novo Nordisk, a global health-care company.
2. Use Europe to diversify. Portfolios with a globally diversified mix of stocks and high-quality corporate bonds allow the investor or active money manager to choose when and where to invest, says Stephen Wood, chief market strategist at Russell Investments, based in Seattle. Right now, he recommends underweighting European markets versus other regions. But as concerns ebb about the European debt crisis, "disciplined investors will see opportunities in European stocks and bonds, understanding that European government bonds will be problematic for some time to come," he says.