These Topnotch Offerings Are Betting on Europe

The global financial markets are fixated on the sovereign debt crisis in Europe. And though it's unclear as to how the crisis will play out, there doesn't seem to be an end in sight given massive deficits, unemployment, the threat of credit downgrades, and political turmoil. Thus, investing in Europe has become a decidedly contrarian move.

But is it a complete doom-and-gloom scenario for the eurozone, or are some fund managers finding fertile ground to unearth buying opportunities amid the growing pessimism?

To seek out funds that were boldly treading into the beleaguered European market, we used the  Premium Fund Screener to search for noninstitutional funds within the world-stock category and foreign small-, mid-, and large-cap universes with more than 70% of their assets in Europe. (We set that baseline by looking to the MSCI EAFE Index, which has a 66.08% stake in Europe).

We then eliminated load funds and those with fees that exceed their category averages, and layered on a screen for managers who have helmed the fund for at least five years. Finally, we sought offerings that emphasize downside protection by requiring funds with Morningstar Risk ratings of below average or better. Below, we highlight two of screener's funds. Premium users can  click here to replicate this screen.

 Tweedy, Browne Global Value (TBGVX)
Currently, this portfolio has a 71% stake in Europe compared with the US Foreign Large Value category average of 62%. But the seasoned managers pay attention to the downside: Management prefers high-quality companies and likes to buy them when they're trading cheaply relative to what they think they're worth. The fund's returns will often be out of sync with its peers, in part because of its quality emphasis, distinct sector biases, and the fact that management hedges most of the fund's currency exposure back into the dollar. That said, investors seeking lower-risk foreign exposure with a distinctly contrarian flair will find a fine core holding in this offering.

 USAA International (USIFX)
Skippers Marcus Smith and Daniel Ling are valuation-conscious growth managers, so they're invariably lightening up on popular areas and buying out-of-favor names. Case in point: Their exposure to greater Europe is at 71% currently, versus 59% for the average U.S. foreign large growth fund. Smith and Ling maintain a long-term perspective--turnover here is much lower than that of the fund's typical peer. Such a reserved approach makes this fund most appropriate for moderate investors rather than those seeking a highflying growth fund.