European Fund Favorites

08/06/2004 12:00 am EST


Leonard Goodall

Co-Editor, No-Load Portfolios

"We believe most investors should have some foreign holdings in their portfolio, including Europe," say No-load Portfolios co-editors William Corney and Leonard Goodall. Here, they look at four funds well positioned to benefit from European growth.

"Our latest focus fund is ICAP Europe Select Equity (ICEUX). The value orientation of this fund’s managers have served it well and make it a good choice for a core holding if you want just one Europe fund in your portfolio. The fund tends to have a high turnover, which can cause tax problems. Therefore, you are better off to own it inside your retirement account, if possible. Its portfolio is invested mainly in the United Kingdom (32%), with positions in Switzerland, the Netherlands, France, and Germany. Its largest holdings are Royal Bank of Scotland, GlaxoSmithKline, BP, Vodaphone, and Credit Suisse Group. The expense ratio of 0.80% is very reasonable for an overseas fund. In addition, regarding European stocks, we were impressed by recent advice given by Richard Wolde, in SmartMoney . He believes European stocks are cheap compared to alternative investments. He notes that in developed Western Europe, the average stock is selling with a p/e of 13 – which is 20% below the historic multiple. Moreover, earnings are expected to increase about 25% in 2004. Adding to this favorable situation is the expectation that the Euro may gain in value against the dollar. For fund investors Wolde provides three no-load recommendations:

"Fidelity Europe Capital Appreciation (FAEAX) invests in Europe through a mix of large and small capitalization stocks. The large, under-priced blue chip company stocks are used as an anchor, and the smaller company stocks provide the opportunity for extra appreciation. In the past 12 months, the fund has gained 52%. Oakmark International (OAKIX) has gained an average of 14% over the past three years. Although the fund invests in many areas of the world, currently 70% of assets are invested in European companies. One advantage of owning this fund is that manager David Herro will reduce the weighting in European stocks when he believes they are no longer a value as compared to other areas in the world. This ‘automatic reduction’ of European exposure can be especially beneficial to investors who do not follow the European market closely. Meanwhile, Wolde also suggested an index fund – the Vanguard European Stock (VEURX). Over the past 10 years, it has returned an annualized 9%, while maintaining a very low 0.32% management fee. If you’re goal is to track European equities at a low cost, this fund is an excellent choice."

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