9th November 2011

F&C’s Question of the Month: only one in five believes

With the sovereign debt crisis in Greece, Italy and other peripheral European economies continuing to dominate the world stage, private investors have expressed their misgivings over the likely future of the Eurozone.

The latest Question of the Month survey by F&C Investments canvassed the opinions of visitors to F&C's investment trust website, www.fandc.co.uk, during October - a month that culminated in the brief relief of the 'grand plan' followed by the blow of a further delay (since resolved) as Greece sought a referendum.

Thesurvey asked whether the Eurozone could withstand the current debt crisis.
Only 19% of respondents said they felt there was too much at stake for the currency bloc to fail. The same proportion said that the current crisis had only served to prove the unsustainability of the euro project. In the middle ground, 21% said the only chance of Eurozone survival was greater fiscal and political union, while the largest proportion - 41% - said that while the core of the Eurozone could hold firm, some of the peripheral countries might leave as a result of the crisis.
While the countries in the euro bloc and elsewhere across the world have expended considerable time and money trying to keep the currency union together, the mood in the markets is increasingly one of inevitability as to a partial dismantling of the zone.

When the latest bailout plan was unveiled towards the end of October, Ted Scott, Director of Global Strategy at F&C Investments, commented: "The key point to recognise is the Grand Plan does not represent a change in strategy that, I believe, is necessary to provide a successful solution to the crisis. It signals a desire to maintain the status quo of keeping the periphery countries within the EMU while not moving to a full fiscal union. The Plan still does not address the underlying problem of the Eurozone, which is a drastic lack of competitiveness and growth in the periphery countries that are saddled with an overvalued exchange rate they cannot escape from."

Scott added that the lack of economic growth in Europe presents the real possibility of another recession in 2012. However, economic and stockmarket performance do not always go hand in hand, and some of the peripheral European countries that have struggled with debt problems still contain many attractive companies.

European Assets Trust, which specialises in smaller and medium-sized companies across Europe, has its highest country weighting to Ireland (19.7% at the end of October), which forms one of the group of troubled peripheral European economies known as 'PIIGS' (Portugal, Ireland, Italy, Greece and Spain).

But as manager Sam Cosh points out: ""We would argue that the importance of individual stock selection is greater in the Small Companies sector than virtually any other. A small successful company can achieve excellent rates of growth despite macroeconomic headwinds. In the European Assets Trust portfolio we have been happy to own many companies domiciled in Ireland (certainly one of the economies presently consigned to the 'scrap heap' of Europe) which have yielded good returns and have great long-term prospects."

European Assets Trust is one of more than a dozen investment trusts managed by F&C, covering a range of markets around the world and asset classes including shares, property, private equity and hedge funds.

The full survey results are below. November's question is now online at www.fandc.co.uk, asking investors how they think the US stockmarket will perform in the year running up to next November's Presidential election.

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