Despite gathering strength in the European economies, European country and regional closed-end mutual funds recently sold at discounts to their net asset values of 5 percent to 30 percent.
In rising markets, observes Standard & Poor's Outlook, "country fund discounts tend to contract, so if these funds rebound in the months ahead, their U.S. investors could get one extra kicker from narrowing discounts and another from a strengthening euro."
The Outlook believes that this double-barreled potential makes particularly good buys of seven European closed-ends that recently traded on the NYSE at discounts to net asset value of more than 15 percent.
Three regional funds top the list of the Outlook's big bargains: The Central European Equity Fund (recently trading at a 26 percent discount to net asset value) invests at least 50 percent of its assets in Austria and Germany, and another 15 percent in the Czech Republic, Poland and the Slovak Republic. The Europe Fund (15 percent discount) is always at least 65 percent invested in European stocks, primarily in the major countries. To complete the mix, the European Warrant Fund (24 percent discount) holds equity and index warrants and long-term options on a wide range of countries.
Here are the four specific-country funds with big discounts that the Outlook likes:
The New Germany Fund (22 percent discount) is invested primarily in mid- and small-cap stocks, at least 80 percent in the former West Germany. Such names as Marschollek Laut & Partner, Qiagen and Fresenius head the list. The German economy grew only 1.4 percent in 1999, notes the Outlook.
The Irish Investment Fund (29 percent discount) is always at least 65 percent invested in Irish stocks. Its top holding, Allied Irish Banks, recently made up 21 percent of assets. While the Irish market has performed poorly over the past two years, admits the Outlook, "Ireland's economy itself is strong. Investor concern that euroland interest rate hikes may not be sufficient to prevent economic overheating has cast clouds over the market."
The Portugal Fund (17 percent discount) has underperformed recently, as has its market, largely due to investor concerns that European monetary policy will not be sufficiently restrictive to forestall Portuguese inflation, says the Outlook. "Two stocks dominate this portfolio: Portugal Telecom, 25 percent of assets, and Electricidade de Portugal, 20 percent."
The Swiss Helvetia Fund (19 percent discount) holds mostly Swiss blue chips such as Novartis, Roche Holdings, Nestle, ABB Ltd., Credit Suisse Holding and Swiss Reinsurance. Many of them are showing strength this year in a solid economy, concludes the Outlook. "The fund is currently 25 percent financials and 16 percent pharmaceuticals."
(Standard & Poor's Outlook, 55 Water St., New York, NY 10041; weekly, $298 annually.)
This column is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.