Domestic U.K. stocks look like the best bet to secure returns as European markets come to terms with a muted Emmanuel Macron rally, GLG fund manager Henry Dixon has told CNBC.
"We're very much of the view that the domestic portion (of the U.K. benchmark) is where you want to spend your money," Dixon said.
Dixon pointed to what he sees as superior price-to-earnings ratios, which is an important metric used by investors to gauge the value of a stock. Dixon said these ratios are trading around a 30 percent discount relative to European peers, alongside a "constructive" sterling environment. The U.K. currency has remained stubbornly low since the U.K.'s Brexit vote almost one year ago.
Investors' jubilation at Sunday's victory for business-friendly Macron as France's next president was short-lived Monday and European indices quickly pared gains, with the pan-European Stoxx 600 ending the day in negative territory.
European banks, which started higher on Monday and may have expected to be among the strongest performers Monday, fell 0.6 percent.
"I think that natural home for money in banks yesterday (Monday) was probably actually spent elsewhere on relative valuation grounds in the U.K. bizarrely," said Dixon.
A note released Monday by Kensho, a data analytics firm, suggested that U.K. equities could be on track to continue their gains on Europe as Britain's snap election draws closer. Historically, the FTSE 100 has outperformed broader European equities ( the Euro Stoxx 50) in the final month before a U.K. election.
"Over the past seven U.K. general elections since 1987, the FTSE has traded positive 71 percent of the time with a median return of 0.78 percent one month prior to these election. U.K. equities have outperformed broader European equities over this span, with the Euro STOXX 50 up only 29 percent of the time with a return of -2.15 percent one month prior to these elections," the research said.
What next for European equities?
As the political landscape in French gains some certainty at long last, investors' eyes will now be turning to developments in Britain and Germany.
Both major European countries face general elections in June and September, respectively, though it is widely anticipated that their incumbent leaders will retain their seats.
This could bode well for European equities, said Dixon. Although Macron and German Chancellor Angela Merkel could drive a hard bargain with U.K. Prime Minister Theresa May on Brexit, he predicts that firm leadership could lead to strong economic growth.
"Do we want a great deal with a poor performing continent or do we want maybe a tougher deal with a poorly performing continent?," Dixon asked, referring to upcoming Brexit talks.
"If Europe is cohesive I think Europe is actually performing from an economic standpoint."
Meanwhile, Dolfin's chief investment officer, Vassilis Papaioannou, told CNBC Monday that he anticipates European equities reaching double-digit returns by the end of 2017 as political leaders set about reforming the economic landscape.
However, this boon could be short-lived, according to Brooks Macdonald's chief investment officer.