Pioneer Mutual Fund Invests in Europe

IF there's any doubt that international mutual funds - especially funds geared to Europe - are still winning the attention of investors, just ask officials of the Pioneer Group, based in Boston. Pioneer, with assets under management of about $6.4 billion, has some 12 funds. Add a 13th: The Pioneer Europe Fund just sailed into orbit April 1, and now has assets of more than $3 million.

But Pioneer's Europe Fund is not just another international fund geared to that continent's expanding economy, as members of the Common Market prepare for economic integration in 1992. Rather, it will have separate fund managers based in Europe, who will manage that portion of the total portfolio linked to their respective country or region.

The ultimate investment decisions, of course, will be made at Pioneer's headquarters in Boston, says Norman Kurland, Pioneer's international portfolio manager. ``But what we've done is go directly to Europe to seek out the best European equity managers we can find,'' Mr. Kurland says.

Pioneer officials concede that this may seem an inauspicious moment to launch a new international fund, since so many overseas funds started up during the past several years.

More important, international funds traditionally do best when the United States dollar is in decline and overseas stock markets are on the upswing - thus allowing foreign holdings to be more valuable in dollar terms. That occurred in the period between 1985 and 1988. During those years international equity funds substantially outperformed the Standard & Poor's 500 stock index.

Today, the situation is reversed. The dollar is on the rise against European currencies, which makes foreign holdings less valuable in dollar terms. But Pioneer officials say there is a clear way to invest in European equities and still offset the currency differential: According to Mr. Kurland, his European portfolio managers will stress companies that are ``dollar earners'' - European companies that generate sales from North America or sell goods and services to the US.

``From a marketing point of view, we're probably somewhat late in starting this fund,'' laughs John Mulhall, a vice president for marketing with Pioneer. ``But from an investing standpoint, this is a good time,'' in terms of the ability of fund managers to seek out European firms that are dollar earners.

In terms of sales, ``international funds continue to do quite well,'' says Betty Hart, an official of the Investment Company Institute (ICI), a trade group in Washington. ``International funds were strong sellers this past year. And that's still occurring through the first part of this year.''

Whether the European funds will prove to be strong performers during 1991 remains to be seen, given the rising dollar. Not all European funds are open-ended mutual funds. Closed-end funds, which are usually single-country funds, trade on exchanges. International equity funds, such as Pioneer's Europe Fund, buy only equities abroad; global funds, such as the Templeton Growth Fund, have a portfolio that includes US stocks as well as overseas issues.

The Pioneer Europe Fund requires a minimum $1,000 investment. There is an up-front sales charge of 5.75 percent; annual management fees are capped at 2 percent.

According to Kurland, some 70 percent of the fund's assets will be allocated for investment by Pioneer's European investment advisers. A small cash position will be maintained for transaction purposes.

Overseas investment advisers will be located in the six countries targeted by the fund: Britain, Germany, Spain, France, Italy, and the Netherlands.

Alex Elfers, who is senior fund manager with Bank Mees & Hope NV, (BMH) in Amsterdam, says that his Dutch staff is already studying some 110 Dutch stocks for possible inclusion in the Europe Fund, although only a dozen or so will be in the portfolio at any one time.

Kurland notes that in deciding which European companies to include, he must balance off currency differentials with long-term economic growth. He says that the dollar will go up only another 5 to 7 percent against European currencies, such as the German mark.

Meanwhile, prospects for long-term growth in Europe are considerable, he says. Based on price/earnings ratios, European stocks are cheaper than US stocks; moreover, he believes that European interest rates show some signs of easing, which could fuel that continent's markets later this year.

For equities, Kurland likes Spain best (``fastest growth in Europe''), followed by Britain, the Netherlands, and France, and then Germany and Italy. German companies, he believes, are currently expensive, relative to other European issues.

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