More than a third of pensioners live abroad, half of them in European countries. Long-term investors who intend to spend their old age in a European country should think in advance about investing part of their portfolio in European assets. We have selected some stocks that will help you in this task.
Characteristics of European stocks
About 100 companies are listed on the British Stock Exchange (BSE), most of them from European markets. These include German stocks listed in euros and stocks from other eurozone countries (Belgium, France, the Netherlands, and Ireland) listed in dollars. In line with the general European trend, Swiss and British issuers are also included.
Although the German sector is important, the European market is dominated by companies in the healthcare sector, which is less affected by the economic cycle. This can be advantageous for building a retirement portfolio, even if investors have already started building a maturity fund.
The average dividend yield in the European market is around 3% per year, almost twice as high as in the US (S&P 500). Add in dividend growth (5-7% per year on average), and these portfolios can generate steady cash flow throughout retirement.
European portfolios should be based on stocks with a long history and capitalization. Given the strict laws of the continent and the short history of local stock exchanges, it is possible to favor local companies by choosing those that have been around for at least 15 years (more than 30 years in the market).
This will filter out some tech chips, but also protect companies that started too late to compete with the United States. Specifically, German semiconductor giant Infineon and biotech giant Afimed N.V. will be excluded.
Although the eurozone is just over 20 years old, most of the large companies have a history of listing going back to the German mark, franc and guilder, so they have had plenty of time to grow in size. Over the past 30 years, the European market has grown at a compound annual rate of 8%, so successful companies that started with at least €1 billion in the early 1990s are likely to have a market capitalization in excess of €10 billion today.
Companies such as Nokia (€29 billion) and Ferrari (€35.4 billion) easily fall into this range in terms of chips on the table for a wide range of investors, but so do Lufthansa (€5 billion), Hugo Boss (€3.3 billion), ThyssenKrupp (€5.4 billion) and Varta (€5.5 billion).
Stable growth compared to the market
The DAX index has grown tenfold in 30 years. When it comes to large, fast-growing companies, we are interested in dividends that reflect the quality of their management.
The company with the highest average annualized return over 20 years is Puma, with about 19%, while the company with the lowest return is BASF, which nevertheless outperformed all three indices with an average growth rate of 7%. The average growth rate of the market leaders is around 12%.
The list of European shares traded in two currencies at SPB is quite extensive and can be confusing, but in any case the asset (in dollars or euros) is linked to cash flows in the local currency and can be used for European pension plans.
Among the companies that have consistently outperformed the index over the past 20 years, Volkswagen, Henkel, and Merck are not currently overvalued. Karl Zeiss and Adidas, which are reliable and not yet overbought, can also be added to the portfolio. Analysts currently have a positive view on all five companies.