David Marcus is the portfolio manager for the Evermore Global Value Fund (EVGBX) and protege of legendary investor Michael Price. In January 2010 Marcus decided it was a good time to launch a mutual fund (very contrarian of him) with partner Eric Legoff, whom he had previously worked with at Franklin Mutual; thus Evermore Global Advisors was born.
While the fund can invest anywhere in the world, including the U.S., Marcus has a particular fondness for European stocks, believing investors are currently fleeing when they should be jumping in with both feet. Whether it’s an Europe ETF, mutual fund or individual European stocks, Marcus is confident you’ll do well over the next few years.
Let’s leave individual European stocks for another time, choosing instead to focus on three ETFs to buy as well as two mutual funds. While EVGBX isn’t specifically an Europe ETF, you can be sure it will be included in my two mutual fund recommendations.
Without further ado, here are my five European mutual funds and ETFs to buy.
Europe ETFs to Buy — Vanguard FTSE Europe ETF (VGK)
It’s not surprising that the largest Europe ETF in terms of total net assets — $15.6 billion — is also the cheapest in terms of management expense at 0.12%. Frugal is Vanguard’s middle name. If you’re the type of investor who demands low fees above all else, the Vanguard FTSE Europe ETF (VGK) is your ideal Europe ETF.
VGK tracks the performance of the FTSE Developed Europe Index, a compilation of 515 European stocks from 17 countries including the United Kingdom, France, Switzerland and Germany. And these aren’t just any companies, either. The median market cap is $53 billion, putting VGK solidly in the giant-cap territory. The top 10 holdings account for 20% of the ETFs total net assets, a level of concentration that’s not too top heavy, but still providing some focus.
In the all-important performance department, this Europe ETF has had a rough go of it so far in 2014, down 4.4% through October 6. While it’s more than 12 percentage points worse than the S&P 500, it has managed to outpace the FTSE 250 by three percentage points over the same period. Morningstar gives VGK a three-star rating, which means its past performance is about average when compared to its peers.
Europe ETFs to Buy — WisdomTree Europe Hedged Equity Fund (HEDJ)
Hedging against currency risk when dealing with Europe is often more than half the battle. The WisdomTree Europe Hedged Equity Fund (HEDJ) charges you 0.58% annually to reduce or eliminate the risks associated with volatile currencies such as the euro while still giving you exposure to a basket of European stocks.
HEDJ tracks the WisdomTree Europe Hedged Equity Index which, according to WisdomTree, is “composed of the largest dividend-paying companies from the WisdomTree DEFA Index (broad developed world ex-U.S.) that are traded in euros, with a minimum market capitalization of $1 billion and at least 50% of revenues derived from outside Europe.”
That’s the easy part. Then the fund must take care of the currency hedging, which involves entering into 30-day forward contracts every month to mitigate the currency risk. With $2.9 billion in total net assets it’s clearly an Europe ETF many investors are comfortable with.
I personally like the fact it only has 125 European stocks, choosing quality over quantity. Performance-wise it has managed a decent run in 2014 up 2.1% year-to-date, primarily because hedging has negated the effect of an appreciating dollar versus the euro.
Europe ETFs to Buy — WisdomTree Europe SmallCap Dividend Fund (DFE)
The WisdomTree Europe SmallCap Dividend Fund (DFE) is not for the faint of heart. It tracks the WisdomTree Europe SmallCap Dividend Index, which invests more than 90% of the index’s holdings in European stocks whose market caps are less than $2 billion.
However, in an effort to protect against the greater implied risk of small-cap stocks, its total holdings number more than 350, providing investors with additional diversification reducing but not eliminating risk. In addition, its top 10 holdings account for just 12% of its overall portfolio, further spreading around its $913 million in total net assets.
Interestingly, while the HEDJ has no exposure to the U.K., DFE invests almost 33% of its portfolio there making it by far the ETF’s largest country allocation. With the exception of Sweden, no other country has a double-digit weighting.
Finally, I’d be remiss if I didn’t talk about dividends given that it’s part of DFEs name. Essentially, the stocks in the index are the bottom 25% of market caps of the WisdomTree Europe Dividend Index after the 300 largest companies have been removed. As of the end of June, its trailing 12-month dividend yield was 2.14% — a decent return for any income-oriented investor.
However, be aware that DFE not only invests in small-cap stocks, it also isn’t hedged against currency risk. This is not an Europe ETF for the timid.
Europe Mutual Funds to Buy — T. Rowe Price European Stock Fund (PRESX)
Ranked highly by Morningstar over a number of different periods of time, the T. Row Price European Stock Fund (PRESX) is a $1.8 billion actively managed fund that seeks capital appreciation in large- and small-cap stocks.
In existence since 1990, the fund has been managed by Dean Tenerelli for the past nine years. Any fund worth its salt has consistent management. And with Tenerelli managing the same fund for almost a decade, you can be confident in this fund.
There’s nothing particular about PRESX that you wouldn’t see in other European-oriented mutual funds. It has 22% of its assets invested in the top 10 holdings, with the U.K. its largest country weighting at 24.8% and France, Switzerland, Germany and Spain also making large contributions. Focusing on financials and consumer discretionary stocks (50% of its 72 holdings) it has been able to easily outperform VGK by 240 basis points on an annual basis over the past five years.
With PRESX turning its portfolio approximately once every two years, Tenerelli’s done a good job demonstrating that actively managed mutual funds can outperform index ETFs.
Europe Mutual Funds to Buy — Evermore Global Value Fund (EVGBX)
David Marcus and company are value investors. With the Evermore Global Value Fund (EVGBX), They’re looking for stocks that are undervalued but undergoing some sort of catalyst that will soon change investor perceptions.
EVGBX currently invests 67% of its $238 million in total net assets in European stocks, with bets across the board from large caps to micro caps and everything in between. The average market cap in EVGBX is $10.4 billion, far lower than its world-stock peers.
In terms of performance, there hasn’t been much to write home about since inception, with EVGBX underperforming those same peers by 342 basis points on an annualized basis over the past three years. I’m assuming Europe had a lot to do with this; I reckon the same will be true when it outperforms its peers over the next few years.
With the fund charging 1.65% annually, you’re probably wondering why you should trust Marcus with your hard-earned money?
That’s a good question and the answer’s a simple one: Marcus employs a “private equity approach to public company investing” that is very contrarian in nature, focusing on the long term. Buying when others are fearful will ultimately be a winning hand, but only patient investors need apply.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.