... Should US Investors Follow?
American investors looking for a "safe" way to invest abroad need look no farther than Western Europe.
The US continues to lead the world in total stock-market return, even more so after the the financial crisis in Southeast Asia gripped global markets. The US market is up 27 percent this year, measured by the Standard & Poor's 500 index.
But hey, look who's right behind: Europe.
And while any stock investment carries significant risk, European markets are far stabler than those in Asia or Latin America.
Unemployment remains high and some countries still struggle to meet the goal of a common currency by 1999. But Europe looks poised for growth, experts say.
London's main market index is up 17 percent this year, outpaced by France (21 percent), Germany (33 percent), Italy (43 percent), the Netherlands (34 percent), Spain (29 percent), and Switzerland (41 percent).
Compare that to Japan, down 18 percent, or Singapore and South Korea, down about 24 percent through last Wednesday.
Transformation under way
Corporate Europe has launched a major restructuring effort, including streamlined companies and a wave of mergers, boosting stock prices.
"In terms of raw economic fundamentals, including economic growth projections and currency stability," Europe is in "far better shape than Asia" and second only to the US in steady returns, says Kevin McDevitt, who tracks European mutual funds at Morningstar in Chicago.
"There is a widespread feeling that European firms are doing things right, although valuation levels are not as low now" as for hard-hit Asian stocks, he says.
Barring the unexpected, Europe will show "continued economic growth," says Darren Rawcliffe, an economist at the London office of Standard & Poor's/DRI, an economic consulting firm. About 80 percent of all European economic activity takes place in the four largest markets: Germany, Britain, France, and Italy. Mr. Rawcliffe expects steady growth for all four right into the next century.
He sees German economic growth moving from about 2.4 percent this year to 2.6 percent in 1998 and 1999, he predicts; France from 2.2 percent this year to 2.9 percent in 1998 and 2.7 percent in 1999; Italy from 1.2 percent this year to 2.4 percent the next two years. Only Britain will markedly slow, from 3.5 percent this year, to about 2 percent the next two years.
Peter Lamaison, who runs American Express Asset Management in London, likes large blue-chip multinational European firms, including Shell, a British-Dutch energy firm, and Unilever, a British consumer-products company.
Europe has rewarded mutual-fund investors with an average 12.25 percent year-to-date gain in 63 Europe-oriented funds tracked by Morningstar. That may pale against the 25 percent gain for the average US stock fund. But Europe markets have just started in the restructuring cycle that launched American markets in the 1980s. And compared with international funds generally, Europe has done very well.
And the leading funds have posted even better returns.
Fund companies are now fine-tuning their holdings, Mr. McDevitt says, looking to regional sub-sectors. Thus, he sees new funds in the works for Eastern Europe, including Poland.
Some analysts skeptical
Despite solid performance for European funds, some US stock managers believe small investors in the US should stay home.
Stephen Dalton, growth-fund director at CoreStates Investment Advisers in Philadelphia, likes overseas funds "if you have a time frame of up to five years." But for now, he prefers to stay focused on US companies.
Following the Nordic Track, For New Market Potential
ome European mutual funds focus on sub-sectors.
Fidelity Nordic Fund (800-544-8888) is up 16 percent this year. It sagged in recent weeks, amid global currency turmoil, after being up as much as 29 percent in early October.
A Scandinavian fund makes sense, says Darren Rawcliffe, of Standard & Poor's/DRI in London. The region boasts high economic growth and technological/manufacturing prowess and is expected to grow faster than other European economies..
Currently, the Nordic Fund is overweighted in Swedish and Finnish companies, underweighted in Norway and Denmark. Top holdings include phonemakers Ericsson of Sweden and Nokia of Finland, and Astra, a Swedish drug firm.
Colin Stone, who manages the fund in London, says corporate financial disclosure is excellent in Scandinavia, especially Sweden and Norway. And he says Nordic management teams are among the most shareholder-friendly anywhere.
A less-typical specialized fund is Payden & Rygel European Growth and Income, started in June. It limits its picks the largest stocks in Britain, Germany, France, and the Netherlands - their equivalent of the Dow Jones Industrial Average. Then it buys those with high dividends per share, often companies with beaten-down share prices. The fund (800-572-9336) is up 2 percent, a bit behind European markets in general since June.