Though Europe has always topped by foreign-travel wish list, I'm ashamed to say I've never gotten around to booking a trip. But while I may never have actually set foot there, I've been investing in European companies for several years. Owning a diversified international mutual fund has helped me own some high-quality stocks from the Continent (and elsewhere).
Although developed European countries' stocks have trailed the red-hot emerging markets sector in recent years, Europe has been no slouch, racking up some pretty impressive gains. Two funds in particular top the charts.
The Europe fund with the highest five-year annualized return through May 2007 is the AIM European Small-Company Fund
Focus on emerging Europe
Coming in second place: the U.S. Global Accolade Eastern Europe Fund
Diversified global investing
Fools know that fishing in international waters is a great way to both diversify their portfolio and boost returns. Domestic stocks only represent about half of the total worldwide market capitalization available for investment. Depending on your risk tolerance and time horizon, make sure you have at least some exposure to foreign companies in your portfolio.
Although the AIM European Small-Company Fund and the U.S. Global Accolade Eastern Europe Fund have both posted some great results, neither one is the type of foreign fund I would advise most investors to own, at least not as a stand-alone foreign fund.
While some folks may be tempted by the type of returns the AIM European Small-Company Fund has provided recently, this kind of fund is simply too narrow in focus for most diversified investors. Investors should have exposure to all regions of the globe, with special attention given to proven, larger-cap foreign stocks. AIM European Small-Company is an excellent fund, but if you own it, it should be supplemented with another fund or two that focuses on other regions and on the large-cap space. Don't rely on this fund for all of your exposure to foreign stocks.
Likewise, the U.S. Global Accolade Eastern Europe Fund focuses only on emerging markets, a notoriously volatile segment. Should emerging markets hit a bump in the road, this fund could suffer a dramatic downturn. Furthermore, investors also need exposure to developed foreign markets, so this fund shouldn't be a Fool's sole international holding. It's not a bad fund overall, but it's a bit too expensive for my tastes.
Think broadly when buying foreign funds, and you stand a good chance of achieving investment success. Even if I never actually make it to Europe, at least I can benefit from investing there.
For more foreign Foolishness:
- The Best International Stock for 2007 Revisited
- Outperform With International Stocks
- Following the International Money Trail
Interested in finding out which foreign investments might be right for your portfolio? Then check out the Fool's Global Gains newsletter with a free 30-day trial today. Or take a free trial to Shannon Zimmerman's Champion Funds newsletter.
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