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Value funds at top, bottom of European fund ratings

What are we looking for?

How European equity funds are faring this year amid concerns about sovereign debt woes and a weak global economy. While the European debt crisis was confined to the periphery countries last year, the contagion may threaten the larger economies of Italy and Spain.

The screen

We looked at the eight best and worst performing funds this year to Aug. 24. U.S. dollar, segregated and duplicate versions of the funds, most of which focus on western Europe, were excluded. However, we did include Excel Emerging Europe, which invests in eastern Europe.

What did we find?

Value funds leading and trailing the pack.

Mackenzie Ivy European Class emerged at the top with a 3.7-per-cent gain, one of a few in the black. Ironically, Dynamic European Value - last year's top performer - has struggled this year, shedding 27.5 per cent.

Mackenzie Ivy European's return was helped partly from holding 20 per cent of the assets in cash, and avoiding the hard-hit banking sector, said lead manager Paul Musson of Mackenzie Financial Corp. "The last European bank we held was HSBC, and we sold that in 2004."

Avoiding banks stems from a view that they are expensive or risky as opposed to being bearish on them, he said. "Banks are higher risk because they are harder to analyze... For a lot of them, it's hard to know what the value of the assets are on the balance sheet." Instead, the fund had been about 60 per cent invested in consumer names like Nestle, Danone and Unilever.

Dynamic European Value, however, was hurt by the "big correction" in financial stocks this year, said manager Chuk Wong of Goodman & Co. Investment Counsel Ltd. "We have reduced our financials now to below 10 per cent [from the high teens] as a measure to reduce risk."

"A few months ago, we looked at the financials and they were very, very cheap," he said. "Our investment thesis was based on the European governments coming out with a comprehensive package to address systemic risk, and so far they haven't."

French bank Société Générale, which he considers to be a "stronger bank," is a top holding. But its shares have tumbled because "the market did not differentiate the better ones from the weaker ones," he said.

Hedging the fund's exposure to the euro and British pound back to the Canadian dollar also didn't help as those currencies appreciated versus the loonie, Mr. Wong added.



(July 31)Latest(Aug. 24)(July 31)Calendar year % returns
Fund nameAsset ClassAssets ($-mil)MERYTD % rtnYTD % rtn201020092008200720062005
Top 8
Mackenzie Ivy European FundEuropean Equity102.842.483.74.2-12.19.9-37.4-5.529.14.9
IG Mackenzie Ivy European-CEuropean Equity240.482.923.64.1-0.17.3-8.3-2.026.0-2.9
BMO GDN European AD SrEuropean Equity2.912.420.43.54.6n/an/an/an/an/a
BMO EuropeanEuropean Equity67.832.420.33.54.613.7-39.4-8.934.07.3
Stone & Co. EuroPlus Div Growth AEuropean Equity8.172.94-0.92.4-6.613.1n/an/an/an/a
Trimark EuroplusEuropean Equity116.022.79-
Scotia EuropeanEuropean Equity18.912.69-
CIBC European EquityEuropean Equity215.342.56-4.93.9-1.414.6-24.3-5.828.04.4
Bottom 8
Dynamic European ValueEuropean Equity47.842.41-27.5-13.311.128.7-38.3-19.336.45.7
Excel Emerging Europe AMisc. - Geog. Equity7.912.95-21.0-4.23.973.2-60.4n/an/an/a
Manulife European Opportunities FdEuropean Equity14.292.77-15.2-4.20.918.6-41.2n/an/an/a
AGF European Equity ClassEuropean Equity347.423.03-14.4-0.6-20.315.1-36.6-11.741.010.0
Investors Euro Mid-Cap Equity-CEuropean Equity774.492.92-13.3-4.55.427.1-41.3-6.548.513.5
Fidelity Europe-BEuropean Equity196.472.33-12.9-2.86.510.5-36.818.535.211.6
RBC European EquityEuropean Equity1,856.652.20-12.3-
FÉRIQUE EuropeanEuropean Equity88.211.22-11.90.7-3.821.6-31.7-9.730.56.4
MSCI Europe ($ Cdn)1.7-1.016.2-32.6-
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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