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Top-performing European equity fund largely steered clear of financial stocks

swon@globeandmail.com

What are we looking for?

European equity funds have had a rough ride over the past two years amid the euro zone debt and banking crises. Let's see the impact on returns over a decade.

The screen

We looked for the eight leaders and laggards over the 10 years ended April 30. U.S. dollar, segregated and duplicate versions of funds were excluded.

What did we find?

A tale of two Dublin-based value managers.

Investors Euro Mid-Cap fund, which has largely avoided the troubled European financials, posted an annualized 4.1-per-cent gain. AGF European Equity Class, which once had 50 per cent in financials in recent times, suffered an annual loss of 2.8 per cent.

The Investors fund's mid-capitalization focus, which would exclude many banks, could explain part of the returns, but not in recent years "where a lot of the banks are now small caps and mid caps," said Martin Fahey, a manager with the Irish unit of Investors Group Inc.

While he owns Finland's Pohjola Bank as part of his fund's 13-per-cent weighting in financials, he has shied away from bargains as the banking crisis spreads to Spain. European equities look oversold, but "if you get more bad news on Greece or Spain, the markets could sell off further," he said.

He tries to own companies that get a big chunk of revenues from outside of Europe. Over a decade, winners in the mid-cap fund have included names like Diploma PLC, Dragon Oil PLC, Société BIC SA and Paddy Power PLC.

Rory Flynn, a manager with AGF Management Ltd.'s value-oriented Irish unit, took over as the lead on AGF European Equity last October from co-manager John Arnold, who retired. Mr. Flynn has cut the fund's financial exposure to 25 per cent more recently from 50 per cent last fall.

While Mr. Fahey is also a value investor, he prefers to be more "flexible" when choosing stocks. "It's dangerous to put yourself in a box," he said. "If one was totally valued focused, over the last three, four or five years, you might have ended up with a massive position in the banks."

*****

BEST AND WORST EUROPEAN EQUITY FUNDS OVER THE 10 YEARS ENDED APRIL 30

to April 30, 2012Calendar year returns
FundMERAssets (in $ mil.)10 years 1 year3 years5 years2011201020092008
Leaders
Investors Euro Mid-Cap Equity-C2.95723.84.06%-10.39%6.02%-8.20%-16.41%5.44%27.14%-41.29%
Trimark Europlus2.9797.71.89%0.02%9.92%-7.58%-2.07%7.44%4.91%-31.14%
BMO European2.5061.01.59%5.04%12.62%-7.04%1.80%4.59%13.68%-39.45%
Fidelity Europe-A2.6121.40.79%-7.67%6.72%-5.19%-14.22%6.22%10.16%-37.00%
CIBC European Equity2.64230.10.63%-7.64%6.93%-4.48%-7.13%-1.39%14.58%-24.33%
Invesco European Growth Class2.9322.40.43%-4.65%9.23%-6.10%-5.69%5.07%15.98%-35.44%
TD European Index1.0241.8-0.23%-13.24%4.16%-8.23%-9.52%-2.01%12.42%-32.21%
CIBC European Index1.2142.6-0.32%-13.38%4.31%-8.11%-10.21%-1.40%11.42%-31.57%
Laggards
AGF European Equity Class3.10210.9-2.78%-29.22%-9.22%-17.35%-20.50%-20.32%15.10%-36.58%
Altamira European Equity2.4527.4-2.29%-11.95%3.42%-10.36%-10.14%0.87%7.69%-37.24%
Quebec Professionals European Equ1.4931.1-2.02%-7.96%5.62%-9.29%-9.69%0.40%4.64%-34.20%
RBC European Equity2.231702.9-1.90%-9.48%3.58%-8.40%-11.41%0.44%9.24%-34.91%
Dynamic European Value2.4939.2-1.72%-21.16%3.37%-11.56%-30.26%11.08%28.68%-38.30%
TD European Growth2.8240.6-1.54%-6.22%7.17%-7.63%-6.20%1.74%11.50%-33.99%
Renaissance European2.808.5-1.38%-14.15%2.54%-8.77%-14.20%-5.44%12.07%-31.40%
HSBC European-I2.4333.8-1.32%-15.32%3.60%-10.05%-13.01%-3.83%15.31%-36.95%
MSCI Europe ($ Cdn)1.04%-12.30%5.71%-7.13%-8.29%-0.96%16.18%-32.55%
Source: Globeinvestor.com

© 2007 The Globe and Mail. All rights reserved.

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