Investors are piling into the eurozone, despite Greek debts and Brexit

For all the current crises, European funds are in demand. Rob Griffin looks at the opportunities and the risks

People drop paper boats on an EU flag in Strasbourg in support of refugees. Investors are enthusiastic about Europe for all the talk of Brexit (AFP/Getty Images)

Investors have fallen in love with the eurozone. Despite economic uncertainty, stock market volatility and concerns over the potential impact of Britain leaving the European Union, interest has rocketed over the past few months.

Around £250m was ploughed into the Europe excluding UK sector in January, and a further £50.6m went into European smaller companies, according to statistics compiled by the Investment Association (IA).

And industry observers believe that a larger than expected package of measures to stimulate the economy, announced by the European Central Bank (ECB), could make exposure to the region's companies even more attractive over the coming months.

Darius McDermott, managing director of Chelsea Financial Services, believes a growth-conscious ECB is good news for investors. "The region is also home to some very good-quality companies and the market is still relatively cheap," he said.

Of course, Europe has long divided opinion among investors. Those in favour insist it's home to some world-class corporate giants, while critics claim it is rife with political and economic uncertainty.

There are certainly plenty of potential negatives, including the Greek debt crisis, the viability of the euro and the refugee crisis. Other challenges, according to David Moss, head of European equities at BMO Global Asset Management, "include China and its slowdown in growth, whether the US can continue to grow, and whether Europe can finally produce consistent growth to bring down unemployment. Brexit is an issue for all of Europe – no one has left before and the implications are unknown."

However, Louise Kernohan, senior investment manager at Aberdeen Asset Management, believes corporate performance drives long-term share prices, and argues that the outlook at a company level gives her confidence.

"Europe is a broad and deep market with plenty of great companies that are globally competitive, with robust balance sheets and experienced management teams," she said. "Company earnings look set to benefit from a number of factors including improved domestic demand, lower commodity prices and supportive foreign exchange."

The safest way to gain European exposure is through an investment fund whose manager will make the calls as to which stocks should be bought – and sold – by the portfolio. Statistics suggest European funds have been broadly successful in their quest to make money for investors over the five years to February 2016, with the average fund in the IA Europe excluding UK sector up 30 per cent.

However, the gulf between the best and worst performers has been vast. While the most impressive funds have risen by more than 80 per cent over this period, the worst have only managed rather modest single-digit gains.

According to Patrick Connolly, a certified financial planner with Chase de Vere, one of the reasons is that funds in the sector can vary enormously. He insists it would be a mistake to think they are similar just because they have the same broad objectives.

"There can be huge differences in the numbers of stocks held, the types of companies they invest in and even whether they are aiming for growth – or income as well," he said. "It is important people understand the funds they're investing in, including the approach and risks they take."

Jason Hollands, managing director at Tilney Bestinvest, favours funds that have low exposure to banks and are littered with strong brands that can be expected to enjoy strong long-term demand.

"These include Jupiter European, Henderson European Focus and Threadneedle European Select," he said. "We are also fans of the FP Argonaut Absolute Return fund, a European equity fund."

Looking ahead, David Vickers, a senior portfolio manager at Russell Investments, is upbeat about the prospects for the region as he believes the outlook for economic growth remains encouraging, supported by policy stimulus.

"European equities have been – and remain - one of our favoured equity markets," he said.

"After the sell-off [by investors] earlier this year, valuations for European equities look attractive, particularly relative to the United States."

However, not everyone is quite so enthusiastic. Julian Chillingworth, chief investment officer at the asset manager Rathbones, has his concerns. Not only does he regard European smaller companies as being difficult areas in which to invest, he insists the economic outlook remains murky.

"I wouldn't be rushing to own a lot of European equities at the moment," he said. "[Prospects] are uncertain and there are other ways of playing the global growth story, such as through the UK and US."