ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

Investment constraints bite for Spaniards

Fund selectors in Madrid fit in perfectly with the Pan-European fashion: they love European equities and are selling US stocks. However, they are based in Spain and are facing Spanish clients. This means cannot really afford to reduce their overall bond weighting. Instead they substitute low-yielding government bonds for high yield and emerging market debt.


PA Europe

As Spain is now the fastest-growing eurozone country, with year-on-year GDP growth of 2% in the final alt=''quarter of 2014, fund selectors in the capital Madrid are now Europe’s biggest optimists when it comes to the economic prospects. A record 80% of fund selectors have a positive macroeconomic outlook, while bears are nowhere to be seen. 

European buoyancy

The strengthening of the dollar versus the euro during the past year has taken aback quite some of the interviewees. Some of them expect the dollar to have reached parity by the end of the year, something they couldn’t have imagined at the start of the year.

And this prospects provides further upside to European equities (and downside to US stocks), Spain’s fund buyers realise. A staggering 83% of interviewees will increase exposure to European stocks. This means Madrid is now at the top of the table when it comes to European equity appetite, knocking Barcelona (with 76% buyers) into second place…

A plight of Tantalus

However, even though there is an almost universal feeling that European equities are now in the sweet spot, many of the European equity bulls will only increase their exposure modestly. One of the fund selectors told our researcher: “We have to follow the demands of our clients.”


These demands involve that their assets should be chiefly invested in bonds, then in bonds and then maybe a little bit in equities, but only if it’s not too risky. So Spanish fund selectors see the promising returns European stocks would offer them, but they can’t jump on the train. To illustrate this: in the first two months of 2015, Spanish investors only added a measly €59m to their European equity holdings. Of total assets under management, only 10% is invested in equities. This is the lowest percentage in Western Europe after Portugal.

US equities: rushing to the exit

While European equities are very popular, US equities are more unloved than ever before. Half of the interviewees, one of the highest percentages in Europe, plan to reduce their exposure, and replace that mostly with European stocks. Still, one in five interviewees are contrarian and plan to step up their allocation.