Back to the Global Portfolio mailbag, this week with a Euroland twist.

My story last week on investment in Ireland triggered a great deal of reaction from readers who agree that Ireland offers more than turf and stout for investors these days.

Several readers brought to my attention that, contrary to what I wrote, there is, in fact, an Ireland-only mutual-fund play. While there are no open-end funds, the closed-end ( IRL) Irish Investment Fund invests at least 65% of its assets in Irish companies with the remainder in non-Irish companies that are affected by events in Ireland. Its largest holding is Allied Irish Banks ( AIB). The fund's price has declined 3.6% this year, but it has risen 11% since a late-May low. Its performance in 1999 was a dismal minus 17%, but it had strong performances in 1997 and 1998, when it rose 34% and 20% respectively.

Currently the fund is trading at a steep 28.1% discount, meaning that the share price is that amount less than the net asset value of the fund divided by the total number of shares. Closed-end funds are baskets of stocks like other mutual funds, but trade on exchanges like individual stocks. Although the price of each share should equal the net asset value divided by the total number of shares, often the price will vary. When a discount on a closed-end fund is greater than 15% to 20%, many analysts think it represents a bargain because the price will eventually head back to parity with net asset value. Indeed, sometimes the fund managers will buy back shares to force it back towards its net asset value.

Many thanks to those readers who brought this fund to my attention.

Euro Trouble

Certainly one of the factors affecting Ireland and its investments has been the declining euro, which reached an all-time low last week and which has contributed to rising inflation in the country.

Moving beyond the Emerald Isle into the rest of Euroland, a reader, who asked to remain nameless, asks about funds that give equity or currency exposure to the 11 nations that comprise the European Monetary Union and use the euro as their single currency.

Although there are around 150 open-end mutual funds that invest in Europe, there is only one that focuses only on the countries that comprise Euroland: ( GTGEX) AIM Euroland Growth Fund . It is up 5% this year, besting the average returns of other European stock funds by more than 4%, according to Morningstar. In addition, Barclays Global Investors recently offered the iShares MSCI EMU ( EZU), an exchange-traded fund that is indexed to a Morgan Stanley Capital International index for the Euroland region. It has slipped 4% since it was introduced in July.

While the iShares MSCI EMU is a full Euroland play, the AIM fund is not quite one: It invests at least 65% in Euroland countries. In fact, two of its largest holdings are from countries outside the euro zone, U.K.'s Vodafone ( VOD) and Sweden's Ericsson ( ERICY).

Indeed, why one would want to exclude the noneuro countries is a good question.

"I'm not sure why anyone would want to own a Euroland fund," says Greg Wolper, international mutual-fund analyst at Morningstar. "You are excluding most of the top pharmaceuticals because they are in Switzerland or Britain." Excluding the U.K. would deprive you of exposure to Europe's largest equity market.

Nevertheless, there are some arguments for owning just the Euroland region. The single currency could translate into economic benefits for the region and promote higher growth. But right now, the strongest argument is that the euro has fallen so far that U.S. investors will benefit when it eventually rebounds.

Wolper doesn't buy that argument, though. "A lot would have to go right for that play," he says.
David Kurapka's Global Portfolio column appears Mondays, Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send it to David Kurapka.

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