French government collapses – fund ideas for investors during market turbulence

• France’s prime minister has been ousted in a vote of no confidence.
• This prolongs any hope of tackling the country’s ballooning deficit.
• Diversified funds provide a way of gaining exposure to companies that still offer growth potential despite market turbulence.
  

Kate Marshall, senior investment analyst, Hargreaves Lansdown:

“France’s prime minister Michel Barnier is expected to hand in his resignation after a vote of no confidence. Politicians on the left, including those in the far-left French Unbowed party, joined Marine Le Pen’s far-right National Rally to kick out Barnier after he tried to force through an unpopular budget. Barnier was appointed earlier this year by President Emmanuel Macron after a snap election was called and no party gained a clear majority.

His budget included €60bn in tax rises and spending cuts, in an attempt to rein in France’s growing deficit, which is expected to reach 6% of GDP this year. But this received backlash from opposition parties on both sides of the political spectrum.

President Macron will now have to select another prime minister, just three months into Barnier’s term – the shortest of any premier since France’s Fifth Republic was founded in 1958. It’s also only the second time a government has been voted down since then.

The next prime minister will still face the difficult tightrope of dealing with a ballooning budget deficit while potentially seeking a deal with another party, such as the National Rally, to remain in power and get a much-needed budget approved.

Either way, France’s political and economic backdrop remains shrouded in uncertainty.

France is now Europe’s weakest performing stock market over the past 12 months, and the only major European market to lose money over this time (in sterling terms).

Investors seeking exposure to Europe should consider diversified funds that invest across the continent and can increase or decrease the amount invested in each country depending on the fund managers’ views.

While Europe, like most economies, faces its own issues, it’s home to thousands of companies that offer diversification to a broader portfolio. Europe is also home to large multinationals, which sell products and services worldwide, so they provide exposure to global markets as well.

Fund ideas

CT European Select

The managers of this fund focus on what’s going on within individual companies, rather than trying to predict the impact of wider economic or political events that may have little bearing on a company’s longer-term success. They also tend to focus on larger firms, which could bring some stability to the fund during tough times, while offering long-term growth potential. The fund mainly invests in larger European countries, such as Germany and the Netherlands, and invests in larger internationals firms like pharmaceutical firm Novo Nordisk and semiconductor manufacturer ASML.

Polar Capital European ex UK Income

This fund aims to generate an income at least 10% higher than that of the MSCI Europe ex UK index, alongside some capital growth over the long term. It invests in larger European companies that are undervalued but have the potential to bounce back. This makes it different from many other European funds that focus on companies with high-growth expectations. The manager is also typically more defensive than many others, which sees the fund hold up better and provide some shelter in particular when markets are seeing shorter-term turbulence.”

Fund performance