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Number Cruncher

GBC International tiptoes through European woes Add to ...

What are we looking for?

Given worries about Greece defaulting on its debt and other financial woes in Europe, let's see how international equity funds have fared over the past year.

These funds must be 90 per cent invested outside of Canada and United States, and at least 70 per cent in developed countries. That means a big bet on Europe.

The screen

We look at best and worst eight performers for the year ended April 30. U.S. dollar, segregated and duplicate versions of funds were excluded.

What did we find?

Low single to stellar double-digit returns, and a cluster of hedged index funds at the bottom.

GBC International Growth's 20.8-per-cent gain, which is the best in the group, stems partly from avoiding European banks, and owning other European financials such as Swiss-based asset manager Partners Group, said Stephanie Braming, a principal of Chicago-based William Blair & Co., which manages the fund.

Europe is only 25 per cent of the GBC fund versus 46 per cent for the MSCI EAFE (Europe Australasia Far East) index, a popular benchmark.

Consumer discretionary, information technology and also Japanese social media stocks such as Gree have helped returns, as has a focus on small-to-mid sized companies that have outpaced their larger-cap cousins, she said. "We also have about 26 per cent in emerging markets, mostly in Asia, and 4 per cent in Canada in Canadian Western Bank, which is the largest [Canadian] holding."

BMO International Equity Index ETF and BMO International Equity ETF mutual fund (invested in the BMO International ETF) were the biggest laggards, respectively, with gains of 2.4 and 2.6 per cent. They trailed because their foreign exposure is hedged back to the Canadian dollar; currencies like the yen, euro and British pound have outperformed the loonie, said Alfred Lee, an investment strategist at BMO ETFs.

Both BMO funds track the Dow Jones Developed Markets ex-North America Index, which has underperformed the MSCI EAFE Index tracked by rival funds. The MSCI Index's higher weighting in energy stocks has helped the performance of index peers, Mr. Lee said.

The irony is that the BMO index mutual fund used to track MSCI EAFE. But the fund's mandate was changed last September to be invested in the BMO ETF instead. The combination of returns from these two different indexes over a year has helped the higher-fee BMO mutual fund outpace the BMO ETF.

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