uploads///Returns of Europe focused Mutual Funds for November

Can Extended Stimulus Measures Help Europe-Focused Mutual Funds?


Dec. 23 2015, Published 4:58 p.m. ET

Expanded stimulus for Eurozone

The ECB (European Central Bank) expanded stimulus measures for the Eurozone on December 3, 2015. It did so by reducing its deposit rate by ten basis points to -0.3%. It also extended the duration of its asset purchase program to March 2017 and beyond, if required.

The program was to end in September 2016. In an important step, the central bank decided to reinvest principal payments from securities bought under the asset purchase program for as long as necessary.

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The Eurozone’s GDP (gross domestic product) rose by 0.3% quarter-over-quarter in 3Q15, compared to 0.4% in 2Q15. On a YoY (year-over-year) basis, GDP grew by 1.6%. Malta and Latvia were among the nations that saw the biggest rises, while Greece and Finland saw falls. Due to this downward revision in GDP, Sanofi (SNY) and GlaxoSmithKline (GSK) fell after the release of the GDP report.

Manufacturing on the rise?

In positive news for the region, manufacturing activity rose. The Eurozone manufacturing PMI (purchasing managers’ index) rose to 52.8 in November 2015, up 0.5 points from 52.3 in October. This was good news for Daimler (DDAIF), STMicroelectronics (STM), and Volkswagen (VLKAY). The PMI was the highest for Italy, the Netherlands, and Ireland.

This is good news for the Eurozone economy and those invested in securities from the region. A pickup in manufacturing, along with the positive impact of stimulus measures, will help to prop inflation in the region up. This is crucial for the ECB.

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Inflation remains subdued

Consumer inflation rose by just 0.1% YoY in November 2015. In December, the Eurosystem staff projected a lower rate of inflation for 2015–2017 than they had in September. This was the primary reason that the ECB decided to extend its stimulus measures.

With the United States’ tightening of its monetary policy, the euro may experience further weakness, which should be good for European exports.

Impact on Europe-focused mutual funds

As is visible in the graph above, Europe-focused mutual funds (IEOAX) (UBPIX) did not have a good November.

In this series, we aim to analyze the performances of Europe-focused mutual funds. We’ll see how they’ve fared across periods and why. In the final part of the series, we’ll try to draw up a composite picture for all who are either invested in or are thinking of investing in Europe via the mutual fund route, taking into consideration the macroeconomic picture drawn here.

We’ll begin our analysis with the Invesco European Growth Fund Class A (AEDAX).


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