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Source favours European equities

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A note from the Research team at ETF provider Source reveals that the firm favours European equities over those of the US and holds a maximum overweight to the Eurozone in the Source model portfolio, the Multi-Asset Portfolio.

 The firm writes that although the Research team at Source is neutral on equities in general and the prevailing market sentiment is negative towards Europe after recent volatility and poor performance so far in 2016, it believes the Eurozone economy is still accelerating and valuations look attractive while US equities have become too expensive. The Research team at Source remains neutral on the UK given Brexit-induced uncertainty.
 
Andras Vig, Director in the Source Research team, says: “Total return from European equities has been near zero over the year-to-date, as negative sentiment has offset decent dividend income and growth.”
 
“While there are pockets of risk in Europe – mostly in banks – we believe the prevailing negative sentiment is not justified. Although some of the uncertainty will remain, there is enough growth to support equities in the region. In particular, we have also softened our negative stance on European oil & gas and have upgraded it to neutral.”
 
“While we remain more positive on equities in Europe than the US, we still expect steady economic growth in both regions, although the UK might experience a mild recession. Our US allocations have become more defensive with an upgrade to healthcare and a downgrade to retail, in both cases to neutral.”
 
“We remain positive on banks and bearish on basic resources in both the US and Europe.”

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