4 ways to bet on a recovery in Europe


June 27, 1993|By JANE BRYANT QUINN | JANE BRYANT QUINN,1993, Washington Post Writers Group

NEW YORK — New York--Europe is a mess. Scandal in Italy, recession in Germany, mounting unemployment in France. Manufacturing jobs are leaking away, not only to low-wage Asian countries but even to America and Japan. German Chancellor Helmut Kohl's domestic "solidarity pact," designed to promote recovery, hasn't yet borne fruit.

I guess it must be time to invest.

It was Fred Schwed Jr., author of the classic 1940 send-up of Wall Street, "Where are the Customers' Yachts?," who penned all you ever need to know about market timing. "When [a recession] gets so bad as to arouse the politicians to make speeches," he wrote, "take your money out of the bank and buy stocks."

So far, Europe's market averages are following Fred Schwed's script. European markets are up 7.5 percent since January, as measured by the Morgan Stanley Capital International Europe 14 Index, compared with just 1.7 percent for Standard & Poor's 500 U.S. stocks.

That's because stock prices anticipate changes in business profitability and growth. The markets are effectively telling you that, within six to nine months, investors expect Europe to be moving out of its slump.

What will drive the market up? Declines in German interest rates. Even if Europe's recovery is only anemic -- like the one in the United States -- stock prices can pay worthwhile returns. U.S. stocks have gained 18.9 percent since the trough of the recession in May 1991.

There are four ways for mutual-fund investors to bet on rising prices in Europe: buy funds that invest in a single country, like the New Germany Fund or the Growth Fund of Spain; buy European-area funds; buy global or international funds that include a sizable European component; or buy general funds that include European stocks in their portfolios.

The single-country funds carry the greatest risk. They're for dedicated hobbyists who will watch each country's market, politics and economy, ready to hop from one country to another as conditions change.

European-area funds diversify your investment over the continent as a whole, so you don't have to worry about which country's industries will do the best. The fund manager does the worrying for you, and gives you a position on every bourse.

Recent top-performing Europe funds, according to Morningstar in Chicago: the no-load (no sales charge) Vanguard International Equity Index Fund -- Europe, in Valley Forge, Pa.; low-load Fidelity Europe, in Boston; and the load funds (with sales charges) GAM Europe and Putnam Europe Growth. Load funds are bought through stockbrokers and financial planners.

The investor who picks only one foreign mutual fund, however, should diversify more widely than Europe. You want a fund that invests over most of the world, so you gain from growth in Asia (whose markets have lately been on a tear) as well as from Canada and the projected European recovery.

Well-diversified funds can also be a "quasi-permanent investment," says Jean-Marie Eveillard, president of the SoGen International Fund. You leave your money there and let the fund manager figure out which part of the world to emphasize.

International funds invest everywhere except the United States.

Recent high-performers with at least 20 percent of their assets in Europe include the no-load Pfamco International Equity in Newport Beach, Calif., and Managers International Equity in Norwalk, Conn.; the small low-load Sierra International Growth in Los Angeles and the load funds, GAM International and Govett International Equity.

Global funds own both foreign and U.S. stocks.

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