Betting on The New Euro

• Share

(2 of 2)

At the moment, shares of European companies are priced as bargains, relative to those of American firms with comparable earnings growth. But the European market is likely to boom as new money flows in. And the probability of a weakening dollar means Americans who move money into Euroland now might lock in exchange-rate profits. "There is a case for diversifying your portfolio into a currency area that provides an alternative to the U.S.," says Merrill Lynch's Bowers. "But there's no shortcut: you still have to find good companies." In the current European climate, the most promising sectors include consumer products, distribution, high tech, health care, insurance and telecommunications.

For most individual American investors, the best way to invest in Europe is through mutual funds. Paribas' Leresche, however, offers this caveat: any fund limited to the euro zone will miss some great companies in Britain, Switzerland and Sweden. These countries are not participating in the single currency, but their stocks account for nearly half the equity value in Europe. Leresche's advice: "Choose a fund that has euro-denominated investments but a Europe-wide view." He recommends the Luxembourg-based Parvest fund, which boasts relatively low fees, superior long-term performance and stable management. Other experts on the European market recommend Fidelity's Europe fund, the Lipper Premium Euro Equity Fund and the Scudder Greater Europe Fund.

While Americans lately have seen how currency crises abroad can hammer their investments, the advent of the euro serves as a reminder that the global economy also offers bright opportunities.