European Focus Fund (HFEAX, HFEBX, HFECX, HFEIX)

The Fund seeks to achieve long-term capital appreciation primarily through investment in equities of European companies. Fund performance will be primarily derived from stock selection. The Portfolio Manager follows a ‘growth at a reasonable price’ philosophy, with a focus on investment opportunities which seek to maximize absolute returns irrespective of style. Country and sector allocation decisions are driven by the stock selection process. The Fund is managed by Stephen Peak.

• Quarterly Factsheet

 

Why invest in this fund?

• An opportunistic investing approach with a flexible methodology on stock capitalization and growth/value orientation
• A growth-at-a-reasonable-price philosophy
• Bottom up stock selection, with country and sector allocation decisions driven by the stock selection process

 

Fund facts (as of 12/31/11)

Inception date:	8/31/01
Minimum initial investment:	$500
Benchmark:	MSCI Europe Index
Median market cap ($billions):	2.5
Total number of holdings:	51
Forward 12-month P/E ratio:	9.8
P/B ratio:	1.3
Beta:	1.1
% of holdings in top 10:	41.7
Class A expense ratio1:	1.60
Morningstar rating (as of 12/31/11)2

¹This ratio is not a guaranteed number and may fluctuate. The class A expense ratio is presented as a percentage of average net assets. The expense ratio is unaudited and is based on annualized fiscal year-to-date results from 8/01/11 to 11/30/11. The ratio may differ from that presented in the Fund’s prospectus that is based on the Fund’s then most recent previous fiscal year.

² Morningstar category: Europe Stock, Number of funds in category: 103. The overall Morningstar Rating for the Fund is derived from a weighted average of the risk-adjusted performance figure associated with its 3-, 5- and 10- year Morningstar Rating metrics.

Portfolio management

Stephen Peak
Head of Pan European Equities

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Top ten holdings %
(as of 12/31/11)

BP (UK)	6.6
European Goldfields (UK)	6.3
African Minerals (UK)	4.6
Zhaikmunai (Kazakhstan)	3.9
Gulf Keystone Petroleum (UK)	3.8
Tesco (UK)	3.6
Kalahari Minerals (UK)	3.6
TUI (Germany)	3.3
Smith & Nephew (UK)	3.1
Amadeus IT (Spain)	2.9
A company's country classification is based on multiple factors including legal domicile and underlying exposure of its business.

 

• Full holdings list

 

Fund pricing and performance

Relative performance as of 12/31/11

Inception date 8/31/01, inception of Class I shares 3/31/09.

Lipper rankings are based on total return and do not reflect a sales charge. Rankings are for Class A shares only, other share classes may vary.

Expense ratios are  not guaranteed numbers and may fluctuate. The gross and net expense ratios are presented as a percentage of average net assets. The gross expense ratio is stated in the current prospectus and is based on the Fund's then most recent previous fiscal year. The net expense ratio is unaudited and is based on annualized fiscal year-to-date results from 8/01/11 to 11/30/11. The ratio may differ from that presented in the Fund's prospectus.

Effective 11/30/10, the European Focus Fund will not accept new or additional investments in Class B shares (HFEBX).

Class I shares were formerly known as Class W shares.

The performance for Class I shares for the period prior to 3/31/09 is based on the performance of Class A shares. Performance for Class I shares would be similar because the shares are invested in the same portfolio of securities and have the same portfolio management. Class I shares are not subject to a front-end sales charge or a distribution fee.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Performance results with sales charges reflect the deduction of the maximum front end sales charge and/or the deduction of the applicable contingent deferred sales charge (CDSC). Class A shares are subject to a maximum front end sales charge of 5.75%. Class B shares are subject to a CDSC, which declines from 5% the first year to 0% at the beginning of the seventh year. Class C shares may be subject to a CDSC of up to 1% on certain redemptions made within 12 months of purchase. Performance presented at NAV which does not include these sales charges would be lower if these charges were reflected. The Fund’s annual operating expenses will likely vary from year to year. It is important for you to understand that a decline in the Fund’s average net assets during the current fiscal year due to recent market volatility or other factors could cause the Fund’s expense ratios for the Fund’s current fiscal year to be higher than the expense information presented. Returns greater than one year are annualized. Index returns provided by Lipper, Inc. Net Asset Value (NAV) is the value of one share of the Fund excluding any sales charge.

The recent growth rate in the stock market has helped to produce short term returns for some asset classes that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short term changes.

Returns included the reinvestment of dividends and capital gains. Performance results reflect expense subsidies and waivers in effect during the periods shown. Absent these waivers, results would have been less favorable for certain periods.

Forward 12-month P/E ratio is calculated using the closing price of portfolio holdings divided by the sum of the 12-month forward earnings per share. P/B ratio is calculated using the closing price of portfolio holdings divided by the most recent fiscal year end book value. Both calculations take into account the respective weightings of portfolio holdings. Beta is a quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market. The MSCI Europe Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe.

Fund overview

The Fund seeks to achieve long-term capital appreciation primarily through investment in equities of European companies. Fund performance will be primarily derived from stock selection. Stock selection is based on an opportunistic approach with a flexible methodology on stock capitalization and growth/value orientation. The Portfolio Manager follows a ‘growth at a reasonable price’ philosophy, with a focus on investment opportunities which seek to maximize absolute returns irrespective of style. Country and sector allocation decisions are driven by the stock selection process. The Fund is managed by Stephen Peak.

Quarterly update

The quarter remained a volatile one for risk assets. Europe’s politicians tried hard to resolve the ongoing sovereign debt crisis, announcing a raft of measures in October including hair-cuts to Greek bonds, recapitalization of the banks, and a plan to leverage the European Financial Stability Facility (EFSF). Contagion worries continued however and the ensuing political change saw new technocratic leaders emerge from Greece and Italy. December saw further steps towards fiscal integration in the Eurozone, with a notable absence of support from the UK Prime Minister Cameron, but this was widely viewed as insufficient by the markets. After initial growth downgrades in the third quarter, US economic data did show improvements towards the back end of the fourth quarter, bolstering hopes for the macroeconomic outlook for 2012.

Fund performance

Over the quarter the Fund outperformed the MSCI Europe index. At the sector level, overweight positions in Energy contributed the most to Fund performance, whereas positions in Consumer Discretionary were the biggest drag. At the stock level, European Goldfields had a good quarter, at first due to positive news flow surrounding a financing deal from a Qatari sovereign wealth fund but later as a friendly approach emerged from the Canadian miner, Eldorado Gold. BP also performed well as it began to fall back in favor with investors as Macondo uncertainties unwind and dividends look set to grow. Gulf Keystone, a Kurdistan regional oil play, was trimmed as valuations benefitted from news that “Big Oil”, ExxonMobil, was moving into the region although the political situation remains tense. Alcatel Lucent was the biggest detractor against Fund performance as an effective turnaround strategy is proving elusive for CEO Ben Verwaayen amidst the market turmoil.   

Investment activity

We trimmed the position in European Goldfields following the friendly takeover approach from Eldorado Gold. This has been a very good position for the Fund and we are pleased that the value that we saw in the company has now been recognized by an industry peer. Carphone Warehouse, the UK based cell phone retailer, was introduced to the Fund during the period. We see the company as offering good value given the global growth prospects for their retail format.

Outlook

Significant levels of sovereign and bank debt will need refinancing in the first quarter of 2012 and recession seems likely in Europe as growth slows and austerity bites. In this event, the European Central Bank may take a more aggressive stance, stepping up its sovereign purchases and relieving some tension in the system. For equities, in the right stocks, valuations are very cheap (with a lot of negative news priced in) and balance sheets are strong creating what we believe to be good opportunities for the Fund.

Prospectus/SAI

European Focus Fund