Money managers, consultants and economists are growing increasingly positive on the case for European equities, citing relatively cheap valuations and further expected moves by the European Central Bank to boost the economy.
The case for Europe seems clear when considering the data. The MSCI Europe index returned 7.6% year to date through Sept. 30, compared with a 4.2% gain for the MSCI All Country World index.
The MSCI Europe even outperformed the U.S. market; the Russell 3000 returned 6.9% for the same period.
Last year was a different story. The MSCI Europe returned 20.7% for calendar year 2013, compared with 23.5% for the MSCI ACWI and 33.6% for the Russell 3000.
But some say the continued political struggles and fears of deflation mean managers are struggling to convince U.S. investors of the opportunity. One big reason is U.S. asset owners have moved toward global allocations and away from regional ones.
“For U.S. pension funds, their European exposure probably comes from a global or Europe, Australasia and Far East allocation,” said Andy Barber, partner and technical leader of Mercer Investments in London. “It depends on the governance budget, but it is a lot easier to go outside the U.S. with a global mandate, rather than with various regional briefs.”
The $188.3 billion California State Teachers' Retirement System, West Sacramento, is the only U.S. pension fund of several contacted by Pensions & Investments that has a Europe-specific allocation — although that is going down.
“Our exposure to Europe-specific mandates has decreased over time, but it was not due to our conviction in our European managers,” spokesman Ricardo Duran said in an e-mail. As of Sept. 30, the pension fund had about $1.6 billion invested in Europe-specific allocations.