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5 Great European Stock Funds

Buy Europe! It's emerging from recession with a ton of high-quality investments trading at bargain prices

By Dan Burrows, InvestorPlace Feature Writer

Europe185European stocks and funds were beaten down for so long, it was only a matter of time before the market started bargain-hunting.

That time appears to be now.

Make no mistake: The region is still a mess. Unemployment is punishingly high, demand is down, banks have capital concerns and the eurozone debt crisis will likely be flaring up again and again for years to come. But data coming out of the eurozone and European Union have finally turned a corner. As improbable as it seemed just a few short months ago, the region is finally — slowly — working its way out of recession.

At the same time, European stocks are dirt-cheap after years of being shunned by investors the world over. That has the smart, patient money moving into European equities in a big way. Indeed, legendary value investor Bill Nygren scours the globe sussing out bargains suitable for his five-star Oakmark Global Select Fund (OAKWX) — and guess what? More than 40% of Nygren’s portfolio is currently allocated to European stocks.

Mutual funds offer an excellent way to gain diversified exposure to a wide swath of blue-chip European companies — especially those that don’t trade on a U.S. exchange. With that in mind, we screened for great European equity mutual funds — ones that, among other characteristics, had to be cheap (expenses of 1% or less), open to new investors for a few thousand bucks, and have a track record of market-beating returns.

T. Rowe Price European Stock Fund

TRowe185Ticker: PRESX
Morningstar Rating: 4 Stars
Minimum Investment: $2,500
Expenses: 1%
Load: None
Yield: 1.55%

Performance Summary: PRESX is up 19% so far in 2013, beating the benchmark MSCI EAFE Index by nearly 7 percentage points. It’s up over the benchmark by 9.7 points for the past 52 weeks, and has outpaced both its benchmark and category on an annualized basis for the last three-, five- and 10-year periods.

Notes: This large-cap fund invests in a blend of European growth and value stocks. Top holdings include Royal Dutch Shell (RDS.B), Anheuser-Busch InBev (BUD) and GlaxoSmithKline (GSK).

Fidelity Europe Fund

Fidelity mutual funds 401(k)Ticker: FIEUX
Morningstar Rating: 3 Stars
Minimum Investment: $2,500
Expenses: 0.8%
Load: None
Yield: 1.99%

Performance Summary: FIEUX is up a bit more than 14% for the year-to-date, beating its benchmark by 2.3 percentage points. More impressively, the fund is topping the MSCI EAFE benchmark index by almost 5 points over the last year. On an annualized basis, FIEUX outperformed its benchmark and category for the trailing three-, five- and 10-year periods.

Notes: A large-cap fund that invests in both growth and value stocks, FIEUX’s top holdings include Nestle (NSRGY), Roche (RHHBY) and GlaxoSmithKline.

Vanguard European Stock Index Fund

Vanguard mutual funds 401(k)Ticker: VEURX
Morningstar Rating: 3 Stars
Minimum Investment: $3,000
Expenses: 0.26%
Load: None
Yield: 4.91%

Performance Summary: VEUX is up 12% for the year-to-date, trailing the benchmark index by 0.4 percentage points. It’s also lagging its category. However, on an annualized basis, this ultra-low-cost fund — sporting a whopping dividend yield of almost 5% — beats the benchmark index over the one-, three- and 10-year periods.

Notes: A passive fund tracking the FTSE Developed Europe Index, VEURX holds a combination of large-cap growth and value stocks. Top positions include Nestle, HSBC (HBC) and Novartis (NVS).

Fidelity Europe Capital Appreciation

Fidelity mutual funds 401(k)Ticker: FECAX
Morningstar Rating: 3 Stars
Minimum Investment: $2,500
Expenses: 0.92%
Load: None
Yield: 1.92%

Performance Summary: FECAX is up nearly 14% in 2013 so far, beating the benchmark index by 1.8 percentage points. It’s also outperforming its category. On an annualized basis for the past one-, three-, five- and 10-year periods, the fund has topped its benchmark by anywhere from 0.4 to 6.1 percentage points.

Notes: Another offering from Fidelity that invests in large-cap growth and value stocks, FECAX also has a 2.7% allocation to U.S. equities. Top holdings include Sanofi (SNY), Bayer (BAYRY) and British American Tobacco (BTI).

ING Euro STOXX 50 Index Portfolio Fund

ING185Ticker: IDJIX
Morningstar Rating: 1 Star*
Minimum Investment: $0
Expenses: 0.46%
Load: None
Yield: 4.56%

Performance Summary: True, the year-to-date performance (up 10%) and three-year annualized return lag the benchmark, and the fund doesn’t have any history beyond that. But consider this: During the past year, the fund is up 30%, crushing the benchmark by almost 7 points. Extremely low expenses and the hefty dividend yield make this young fund look like a winner.

Notes: This passive large-cap value fund tracks the Euro Stoxx 50 Index. Top holdings include Bayer, Total (TOT), and Simens (SI).

* Morningstar ratings focus on a fund’s long-term track record, and since IJDIX hasn’t been around very long, it only gets 1 star.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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