The love affair with European equties, or the Eurozone market as it is termed, remains as strong as ever says Merrill Lynch in its April Fund Managers Survey. Relative to their respective benchmarks, 61% of fund managers reported that they were overweight in Eurozones shares and only 29% overweight in US shares. On a relative basis, the Eurozone equity market, which was not subject to the bullish excesses of its North American counterparts, is viewed by many fund managers as being one of the cheapest. Eurozone corporate prospects are also seen as superior to their US counterparts.

Last week's 0.25% rate cut by the European Central Bank (ECB) should also ease reservations about Eurozone economic growth prospects expressed recently by many investors. These are important considerations for SA investors who, by and large, have offshore quity exposures housed in global general equity unit trusts with a strong US equity market bias.

Investing in a fund such as Sanlam Europe Growth (SEG), which is one of a few rand-denominated funds with offshore investment capacity, will reduce the US market bias and provide a high euro currency exposure. The euro is vavoured by 62% of fund managers compared with only 21% favouring the US dollar.

Managed by Merrill Lynch, SEG has a growth share slant which is also evident in Standard Bank European Growth Fund, the other rand-denominated Eurozone fund still open to investors. Not surprisingly both funds have very similar return records with, notably, SEG at 18.3% Standard European Growth's biggest holding.

Relative to its benchmark, the Morgan Stanley Europe index, SEG is currently overweighted in growth sectors such as IT software and serv ices, telecoms and media as well as the cyclical consumer durable, hotels and leisure sectors.

By contrast SEG's portfolio is underweight in the more defensive shares in sectors such as insurance, consumer staples, banks and utilities.

The growth share bias favours a bullish market and was reflected in SEG's outperformance of its benchmark during April's market recovery. But converfsely this could make SEG relatively vulnerable to any renewed market weakness. This should be borne in minde by more risk-averse investors.

(Source: Financial Mail, May 18, 2001)