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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 April 30, 2013, the group had an annualized return of 9.1%, while the MSCI WORLD Index gained at an annualized rate of 6.9%. For the five- and three-year periods through April, the group had a loss of 1.3% and a gain of 7.4%, respectively, while the Index reported an annualized decline of 0.5% and a gain of 7.2%, respectively. During the past year, the European Equity group reported a gain of 15.5% compared with a gain of 14.1% for the MSCI WORLD Index. Year to date through April 30, 2013, however, the European Equity objective group has almost kept pace with the MSCI WORLD Index, reporting a gain of 6.3% versus a gain of 10.3%, 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. 

Fund Name: T. Rowe Price European Stock Fund
Ticker:PRESX
Year-to-Date Return: 9.98%
Investment Advisor: T. Rowe Price Associates, Inc.
Benchmark: MSCI Europe Index
Objective: The fund seeks long-term growth of capital through investments primarily in the common stocks of companies located (or with primary operations) in Europe.
Investment Strategy:
• The fund will normally invest at least 80% of its net assets (including any borrowings for investment purposes) in European companies.
• The fund may purchase the stocks of companies of any size.
• The fund expects to make its investments in common stocks of companies in the following countries (as well as others as their markets develop): Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and  the United Kingdom. Others: Belgium, Czech Republic, Estonia, Hungary, Kazakhstan, Poland, Romania, Russia, and Turkey.
• The fund generally favors companies with one or more of the following characteristics: leading or improving market position; attractive business niche; attractive or improving franchise or industry position; seasoned management; stable or improving earnings and/or cash flow; and a sound or improving balance sheet.

Fund Name: Virtus Greater European Opportunities Fund A
Ticker:VGEAX
Year-to-Date Return: 9.31%
Investment Advisor: Virtus Investment Advisers, Inc.
Benchmark: S&P 500 Index / MSCI Europe Index
Objective: The fund has an investment objective of long-term capital appreciation.
Investment Strategy:
• The fund invests at least 80% of the fund’s assets in equity securities or equity-linked instruments of issuers located in Europe, including issuers in emerging markets countries. (Equity-linked securities are hybrid securities whose return is connected to an underlying equity, usually a stock).
• The fund intends to diversify its investments among countries and normally to have represented in the portfolio business activities of a number of different countries.

Fund Name: MFS European Equity Fund A
Ticker: MEEAX
Year-to-Date Return: 7.79%
Investment Advisor: MFS Investment Management
Benchmark: MSCI Europe Index
Objective: The fund’s investment objective is to seek capital appreciation. Fund’s objective may be changed without shareholder approval.
Investment Strategy:
• The fund invests at least 80% of its net assets in equity securities of European issuers and other investments that are tied economically to Europe. (Europe includes the more developed markets of Western Europe, as well as developing markets in Eastern Europe.)
• Fund may invest a large percentage of assets in issuers in a single country or a small number of countries within Europe.
• Fund may invest up to 35% of its assets in any industry that accounts for more than 20% of the European market.
• Fund may invest in companies of any size.
• Fund may use derivatives for any investment purpose (to the extent fund uses derivatives, it expects to use derivatives primarily to increase or decrease exposure to a particular market segment of the market, or security).

In the table below, we have listed 10 top-performing funds through April 30, 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 

Fidelity Nordic Fund 

FNORX 

13.39 

3.58 

6.20 

20.65 

-0.94  

  

T. Rowe Price European Stock 

PRESX 

9.98 

5.31 

5.13 

16.10 

1.26 

Eastern European Equity Fund A 

VEEEX 

9.83 

2.49 

4.48 

14.23 

1.52 

Virtus Greater European Opportun Fd A 

VGEAX 

9.31 

2.72 

4.69 

13.87 

  

JPMorgan Intrepid European Fd A 

VEUAX 

8.59 

4.51 

2.61 

18.00 

-1.74 

Invesco European Small Company Fd A 

ESMAX 

8.56 

2.95 

2.12 

15.63 

2.13 

MFS European Equity Fund A 

MEEAX 

7.79 

4.18 

2.55 

14.93 

  

Fidelity Europe Fund  

FIEUX 

7.78 

3.57 

2.75 

14.28 

-0.86 

Invesco European Growth Fund A 

AEDAX 

7.65 

2.46 

3.23 

12.02 

1.66 

Putnam Europe Equity Fund A 

PEUGX 

7.62 

4.46 

2.23 

14.38 

-0.78 

European Equity Objective Group 

  

6.28 

3.25 

1.59 

12.15 

-1.30 

  

At the time of this article's writing, the authors did not have positions in any of the funds mentioned.