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Value Line’s European Equity objective group is comprised of mutual funds that are mandated to invest at least 50% of their net assets in equity securities of European companies, though most typically have more than that amount invested in the region. The funds in this category normally have a broad focus, without highlighting any specific country within Europe. There are, of course, a select number of funds, such as Fidelity Nordic Fund (FNORX), that break this mold. Differentiation on the objective level is mostly on the market cap focus, and there are several European equity funds that invest in small-company stocks (Invesco European Small Company A, ESMAX). 

Thus, most of the European Equity funds Value Line covers are “generalist” in nature, with the latitude to own both growth and value investments across the market capitalization spectrum from small to large. That said, each management team has its own focus, so there are clear differentiating factors among the funds about which investors need to be aware. As usual, funds that follow an index approach are also available, including Vanguard European Stock Index Fund (VESSX).

Although Europe is relatively small compared to other geographical areas in terms of size, its historical and ongoing significance is outsized relative to some of the larger, but often less developed, continents and countries. Also of interest is the diversity of nations that make up Europe. Indeed, Europe is very different from the United States, in that each country there has its own distinct legal, political, and social systems—while each state in the United States is roughly indistinguishable in those respects. This is important to understand, as the distinctions can lead to many complications on the investing front.  It is also why expense ratios for funds in this objective group are often higher than for domestic-focused ones. Another factor to consider here is the use of hedging to offset exchange rate fluctuations; depending on where one believes the price of the dollar is going, this practice can be viewed as good or bad. 

Over the long term, the European Equity objective group has been an above-average performer relative to the markets of developed economies around the world, as measured by the MSCI WORLD Index.  For the 10-year period ended January 31, 2013, the group had an annualized return of 9.6%, while the MSCI WORLD Index gained at an annualized rate of 7.1%. For the five- and three-year periods through January, the group had a loss of 0.7% and a gain of 7.9%, respectively, while the Index reported an annualized decline of 0.9% and a gain of 7.9%, respectively. During the past year, the European Equity group reported a gain of 19.9% compared with a gain of 13.3% for the MSCI WORLD Index. Year to date through January 31, 2012, however, the European Equity objective group has almost kept pace with the MSCI WORLD Index, reporting a gain of 4.6% versus a gain of 5.0%, respectively. Indeed, almost all funds in the group have rebounded from earlier lows, with all but a few reporting year-to-date returns that are in the black. The group has a Risk Rank of 4, indicating that funds in this group might not appeal to risk-averse investors. That said, there is a benefit to geographically diversifying investments. 

One fund with a 2013 year-to-date return above the index average through January 31st is Fidelity Nordic Fund (FNORX). This fund’s primary objective is long-term growth of capital. Under normal circumstances, the fund invests at least 80% of assets in securities of Danish, Finnish, Norwegian, and Swedish issuers and other investments that are tied economically to the Nordic region. It normally invests primarily in common stocks. The fund allocates investments across different Nordic countries, investing up to 35% of total assets in any industry that accounts for more than 20% of the Nordic market.

Another fund with a relatively better return than both the MSCI WORLD year-to-date return and the group overall for the month ended January 31, 2013 is Invesco European Small Company Fund A (AEDAX). This fund’s primary objective is long-term growth of capital. The fund invests, under normal circumstances, at least 80% of net assets (plus borrowings for investment purposes) in securities of small European issuers. Management may invest up to 35% of its total assets in European issuers located in developing countries. The fund invests primarily in equity securities.

The fund is non-diversified, which means it can invest a greater percentage of its assets in any one issuer than a diversified fund can. The fund considers an issuer to be a small issuer if it has a market capitalization, at the time of purchase, no larger than the largest capitalized issuer included in the Russell 2000®Index during the most recent 11-month period (based on month-end data) plus the most recent data during the current month.

A third fund with a notable return is the ING Russia Fund A (LETRX). The fund’s investment objective is to seek long-term capital appreciation through investment primarily in equity securities of Russian companies. Under normal market conditions, the fund invests at least 80% of its net assets (plus borrowings for investment purposes) in equity securities (including common stocks, preferred stocks, and convertible securities) of Russian companies. The fund will provide shareholders with at least 60 days’ prior notice of any change in this investment policy. The fund may invest the other 20% of its assets in debt securities issued by Russian companies and debt securities issued or guaranteed by the Russian government without any restrictions based on investment quality or maturity of the debt securities. The fund may also invest in the equity securities of companies located outside of Russia.

The Sub-Adviser seeks to invest in companies that are undervalued by the market because their pace of development and earnings growth have been underestimated. The Sub-Adviser also seeks to invest in companies that it believes will experience growth in revenue and profits.

In the table below, we have listed 10 top-performing funds through January 31, 2013 that we follow in our Fund Advisor database.

 

10 Top European Equity Funds Performance

 

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3

Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

DFA Continental Small Company Fund

DFCSX

7.55

7.55

15.45

29.18

-0.58

  

Fidelity Nordic Fund

FNORX

6.77

6.77

13.61

19.72

-1.03

Invesco European Small Company Fund A

ESMAX

6.39

6.39

13.35

28.01

3.91

ING Russia Fund A

LETRX

5.99

5.99

13.32

19.04

-3.33

JPMorgan Intrepid European Fund A

VEUAX

5.83

5.83

15.00

28.18

-1.22

MorgStan European Equity Fund A

EUGAX

5.68

5.68

10.85

20.62

-0.64

Putnam Europe Equity Fund A

PEUGX

5.28

5.28

11.88

24.14

-0.09

ICON Europe Fund A

IERAX

5.10

5.10

10.76

19.33

-4.04

Rydex Europe 1.25 Strategy Fund A

RYAEX

5.07

5.07

12.63

26.09

-8.21

Eastern European Equity Fund A

VEEEX

5.12

5.12

9.33

18.49

1.18

European Equity Objective Group

  

4.61

4.61

10.39

20.00

-0.73