European Stocks Blaze for Good Reason
For mutual-fund manager Henrik Strabo, going global today means going European.
And for now, going European means scoring big gains. Optimism about growing entrepreneurship and a common currency has driven stock markets on the Continent to new heights.
That's good for shareholders in Mr. Strabo's two funds, where 82 percent of $3.5 billion in assets are in European stocks.
Shares of American Century International Discovery Fund are up 29.5 percent a year on average in the past three years. That compares with 13.3 percent for other funds with a similar focus on small foreign companies.
The other fund, American Century International Growth Fund, has three-year annualized gains of 23.2 percent, putting it No. 5 among 275 similar international large-company funds.
Bullish on Europe
"What Europe really needs to compete and be successful long term is a more open and capitalistic way of running the economy," says the Danish-born money manager.
That won't be easy, and Strabo predicts continued political squabbles as Europe moves ahead on currency union.
But the overriding trends, he says, look bullish for stocks:
* The euro, the new currency launching next January, promises to unify the markets and monetary policies of 11 initial member nations.
The euro will force companies to price goods and services more uniformly across Europe, which should save money for companies, help consumers, and restrain inflation.
* American-style capitalism has arrived, and executives are likely to push for further financial and labor reforms. "European politicians will be scrambling to keep up with them."
* Individual Europeans will be moving into the stock market.
Strabo expects European nations to adopt retirement plans similar to the 401(k) and individual retirement accounts thriving in the United States.
The resulting money shift could be huge. Germany has one of the smallest stock markets relative to the total economy among industrial nations. Many Germans put their money in savings accounts.
If some of those savings start chasing the small amount of stocks available, the result for investors should "put a smile on your face," he says.
(One of Strabo's largest holdings is Marschollek, Lautenschlger und Partner A.G., a German firm that sells retirement plans based on mutual funds.)
* Labor markets are loosening. As temporary and part-time work expands and job benefits are reduced, companies stand to reap higher profits.
Also, corporate executives will more freely restructure their companies, laying off workers if necessary, merging or acquiring other companies.
"All of a sudden, Europe is bubbling with open-minded, aggressive executives," Strabo says. They are getting stock options from their companies, making them keener to boost profits - and thus share prices. "Europeans are becoming more entrepreneurial."
The aristocratic view that it's grubby to work hard to make money is fading. Increasingly, making a lot of money is seen as something deserved, just as in the US, Strabo says.
Like other fund managers at American Century, Strabo attempts to follow a momentum-investing strategy. He looks for companies with a pattern of accelerating profits.
American Century, based in Kansas City, Mo., is America's fourth-largest no-load fund family. Though Strabo and co-manager Mark Kopinski are based in Greenwich, Conn., they spend several weeks a year visiting European companies.
Getting the European 'feel'
Abroad, corporate statistics aren't as timely or complete as in the US. Accounting procedures differ. And it is more difficult to use computer programs to sort through stocks for suitable investments. So Strabo and his colleagues rely heavily on their meetings with executives to get a feel for company prospects.
He and eight co-workers speak 13 languages between them. Most are taking language courses in the evenings.
Learning a language gives stock analysts more insight into the culture of a nation, interpreting better the statements of executives, he says.
To a degree, Strabo and his colleagues saw trouble coming in Asia, before currencies there began plunging a year ago.
The Discovery fund, for instance, had 18.5 percent of its assets in Asia at the start of 1997. That portion was down to 6.1 percent by September, just before the Asian markets saw their big collapse.
That's one reason their funds performed so well against peers that had more equal weighting between European and Asian stocks.