Like a shy but fearsome leviathan,
EuroPacific Growth fund is quietly dominating its rivals.
With total assets of more than $22 billion, making it the largest foreign fund, EuroPacific is in the top 10% of its category over both short and long time periods. Even better, this publicity-shy fund's enviable record has not been accompanied by jarring volatility -- unlike some of its competitors. And after paying a high front-end load, EuroPacific actually has well-below-average costs.
While all this seems too good to be true, there's much to suggest this giant could actually retain its pre-eminence -- unlike
The team-managed EuroPacific has returned 9.27% over the 12 months through May 27, according to
, ranking it 24 out of 547 international funds. Of the 10 largest international funds, it ranks first over one year.
Over five years, its 12.81% annualized return positions it 11 out of 117 other funds. Over 10, it comes third out of 35, returning an annual average of 13.49%.
Capital Research and Management
, the company that owns American Funds, is known for its low-key, team-based approach. It shuns almost all press coverage and goes out of its way to prevent its managers from being made into stars. A request for an interview with one or more of EuroPacific Growth's seven managers was turned down.
For sure, EuroPacific doesn't need a constant barrage of press coverage to help raise its profile among potential investors. The hefty 5.75% front-end load paid by new shareholders serves as incentive for brokers to sell the fund.
However, while giving money away to brokers may chafe shareholders, EuroPacific works out to be a relatively cheap fund. Its expense ratio of 0.86% is nearly half the sector average of 1.67% and well below 1.12% for
Foreign, the next-largest foreign fund, which also has a 5.75% load.
Templeton Foreign also falls behind EuroPacific on performance. Foreign ranks 67th of 177 international funds over five years, and over 10 years, it's seventh among 35.
Moreover, Templeton Foreign is considerably more volatile. This shows up in risk ratings from fund tracker
. These ratings gauge to what extent a fund's return dips below the sector average. EuroPacific's three-year rating is 0.54 vs. Foreign's 0.68 (the lower the rating, the better). Indeed, among the 10 largest foreign funds, only
Morgan Stanley Dean Witter's
Institutional International fund has a superior Morningstar risk rating (0.48).
This is how EuroPacific has achieved its sterling record.
Unlike most of the other 10 largest foreign funds, which have 60% to 80% of their assets in Europe, EuroPacific has not let its exposure to the region balloon to those sorts of levels. Europe currently accounts for around 52% of assets, and its share has stayed in a tight 45% to 50% range for the past five years. Similarly, Asia's share in the fund has stayed between 22% and 28%. This geographically balanced approach has been a boost over the past nine months, as many Asian markets have outperformed European ones.
In addition, EuroPacific's managers seem to be good stock pickers. Of its top 10 holdings, which make up nearly 20% of the fund, seven are up handsomely year to date. Its largest holding, German telco
, is ahead 21.3% this year.
One criticism of EuroPacific may be that it's relying too much on widely held European growth stocks like Mannesmann. These sold off heavily in the third quarter of last year, and many international funds suffered heavily as a result. However, EuroPacific escaped relatively unscathed: While it returned a distinctly ugly negative 13.6% in the third quarter of last year, that return actually ranked the fund 71 out of 573. But it may not be so lucky next time around.
Perhaps most impressive about EuroPacific is that its size has not been an impediment. Other asset management firms have closed their foreign funds at much smaller sizes. For example,
Overseas to new investors in April 1998, when it had $4.2 billion in assets, because it was getting too large to manage.
EuroPacific is now more than five times the size of Overseas, which has returned a miserly 0.01% over the past 12 months.
The leviathan is still without challengers.