European Opportunity Funds

European opportunities fund focuses its investments on the European area. Typically, its investment objective is to achieve long-term capital appreciation primarily through investment in all types of opportunities, such as, for example, distressed equities of European companies.

European opportunities funds can be broadly defined as funds investing in assets/companies that meet one or more of the following criteria:

  • are situated in Europe;
  • its country of organization and its primary business office are located in Europe;
  • majority of its assets are located in Europe;
  • majority of its revenues are derived from Europe.

In some circumstances, the European opportunities fund will also include funds which decide to allocate high percentage (e.g. at least 80%) of its net assets in opportunities in European area.

European opportunities funds became very popular recently. The reason is the abundant advantages they have, such as possibility of higher market concentration and thus better investment opportunities screening, one currency and thus evasion of currency risk, more frequent and faster trading, lower transportation and due diligence costs, etc. Moreover, the European region is believed to have many undiscovered special investment opportunities, particularly in the non-financial assets area. The network of contacts is much easier to develop when the opportunities fund concentrates its actions on only one investment area.

The European opportunities fund's manager seeks investments that will increase in value in the near future or can be currently sold in another region at a higher price.

In terms of underpriced companies stock, European opportunities fund's manager may invest in companies of any size. Stock selection is based on an opportunistic approach, which seeks to exploit stock specific criteria and particular investment factors in Europe that are expected to drive the stock prices up.

Companies are evaluated by European opportunities fund using a broad range of criteria, including company's financial strength, competitive position in its industry, and/or projected future earnings and cash flows. The manager will invest in both "growth" stocks that he believes are reasonably priced and "value" stocks that are, in the managers opinion, under-valued.

The European opportunities fund is likely to have no limits on the geographic asset distribution of its investments within Europe. The European opportunities fund may invest in companies located in Western European countries such as the United Kingdom, Belgium, Germany, Norway, the Netherlands, Denmark, Switzerland, Finland, Sweden, Portugal, France, Austria, Italy and Spain. If political and economic conditions are suitable, the European opportunities fund may invest in issuers located in Central and Eastern European countries such as Russia, Bulgaria, the Czech Republic, Turkey and Poland.

Country and sector allocation decisions made by European opportunities fund are driven primarily by the stock selection process. However, in evaluating investment opportunities in various countries and sectors, the European opportunities fund's manager will consider:

  • the condition and growth potential of the various economies;
  • industry sectors and securities markets;
  • expected levels of inflation;
  • government policies influencing business conditions;
  • currency and taxation factors;
  • other financial, social and political factors that may have an effect on the investment climate of the companies that are located in those markets.

The distinct feature of European opportunities fund is geographical focus risk, which is the risk of investing mostly in one geographic region. Investment concentration risk exists when investments are performed in a single region, even though representing a number of different types of investment opportunities, since the assets that may be affected by common economic forces and other factors. However, in an attempt to reduce portfolio risks, the European opportunities fund's managers tend to invest across countries, industry groups and/or securities.

Who should invest in a European opportunities fund?

The European opportunities fund may be an appropriate investment for an investor who wants a professionally managed portfolio with an exposure to the European markets. Investor to European opportunities fund should also be willing to accept the risks of foreign investing in order to seek potentially higher capital appreciation. He should not be looking for a significant amount of current income.