The Daily Screen: The Best Europe Funds

Thanks to the sagging euro and a hearty appetite for phone stocks, Europe funds are getting their bell rung these days.

A tumbling euro -- the currency of the unified European nations that has been consistently testing its lows -- hurts U.S. fund investors. Whether the European stocks these investors own go up or down, when Europe funds convert their shares to dollars, they're worth less than when they started due to the euro's falling value vs. the dollar.

To make matters worse, these funds typically focus on big-cap growth stocks in the technology and telecommunications sectors, which are both under water this year. Nokia(NOK), Ericsson(ERICY) and Vodafone Airtouch(VOD), three big telecom/wireless holdings among Europe funds, are down 19.8%, 20.8% and 27.3%, respectively, so far this year, according to Baseline.

Between these sector bets -- which helped Europe funds beat the S&P 500 last year with a 24.9% average return -- and the euro's tumble, these funds are down more than 9% on the year, according to Morningstar.

Continental Divide European and U.S. stocks have often moved in the same direction, but to different degrees.
	Avg. Europe Fund	S&P 500
YTD	-9.5%	-7.1%
1-Year	12	9.6
5-Year	14	20.5
10-Year	12.6	18.7
Source: Morningstar. Annualized performance figures through Oct. 24.

But there's reason to think these tough times aren't going to go on forever. After all, European funds did beat the S&P 500 in 1993, 1994, 1996 and 1999. And despite the euro's current malaise, many still believe that a single currency clears the path for increased cross-border expansion and consolidation.

So, if you like the idea of investing in the region and you're not too daunted by Europe funds' current tumble, here's a list of funds you might consider. Here are 10 Europe funds that have beaten their average peer over the last one- and three-year periods, sorted by their one-year returns.

They're Big in Europe Among Europe funds that topped their peers over the past one- and three-year periods, these 10 have the highest one-year returns.
Europe fund	1-Year Return	3-Year Return
(MEUEX)Deutsche European Equity	141.2%	48.7%
(TEMIX)Mutual European	37.4	18.1
(DRENX)Dresdner RCM Europe	27.1	20.3
(FNORX)Fidelity Nordic	24.4	20.5
(GEURX)GAM Europe	23	9.2
(FEURX)Invesco European	21.6	17.7
(GTGEX)AIM Euroland Growth	21.4	11.9
(FEMAX)Flag Investors European	17.9	14.2
(SBEAX)Smith Barney European	17.4	13.1
(KNEAX)Kemper New Europe	17.1	22
Avg. Europe fund	12	8.4
S&P 500	9.6	15
Source: Morningstar. Annualized performance figures through Oct. 24.

At the top of the list you'll find no-load (MEUEX)Deutsche European Equity. How did the fund post that fat 141% gain? In the first quarter it played lucratively in the IPO market, to the tune of a 105% gain. Since then the fund has focused on more tame, blue-chip fare.

If you're looking for a value or less aggressive approach, check out broker-sold (TEMIX)Mutual European, part of value shop Franklin Templeton's product line. The fund also gives you more small- and mid-cap exposure than most others.

If you're looking for a more aggressive approach, look at telecom-heavy, no-load (FEURX)Invesco European and broker-sold (GTGEX)AIM Euroland Growth, which share co-manager Steven Chamberlain. For an idea of how he invests and where he sees opportunities, check out this 10 Questions interview with the London-based manager.

And if you're a die-hard indexer, you should consider the (VEURX)Vanguard European Stock Index fund, which tracks the mostly big-cap MSCI Europe Index. Though the fund has lagged a bit over the last year, it beats its average peer over the last three-, five- and 10-year periods, according to Morningstar. As you might imagine, its 0.29% annual expense ratio is tiny compared with the category's 1.78% average annual expense ratio.

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