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?

• Managed by one of the United Kingdom's most accomplished stock pickers
• 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 3/31/12)

Inception date:	8/31/01
Minimum initial investment:	$500
Benchmark:	MSCI Europe Index
Median market cap ($billions):	2.9
Total number of holdings:	63
Forward 12-month P/E ratio:	10.4
P/B ratio:	1.2
Beta:	1.1
% of holdings in top 10:	35.9
Class A expense ratio1:	1.56
Morningstar rating (as of 4/30/12)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 3/31/12. 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: 108. 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
Director of International Equities

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Top ten holdings %
(as of 4/30/12)

African Minerals (UK)	5.9
BP (UK)	5.6
Africa Petroleum (Australia)	4.9
Zhaikmunai (Kazakhstan)	3.2
RusPetro (UK)	2.8
Continental (Germany)	2.8
Sky Deutschland (Germany)	2.7
Renault (France)	2.7
Svenska Cellulosa (Sweden)	2.3
Providence Resources (Ireland)	2.3

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 3/31/12

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 3/31/12. 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.

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

2012 began with one of the strongest starts to a calendar year since 1998 as risk assets found favor after a volatile end to 2011, buoyed by the increased liquidity from the European Central Bank and positive earnings and banking stress test results in the US. The European equity markets were reassured by European bank’s healthy uptake of the ECB’s first LTRO (Long-Term Refinancing Operation) auction in December 2011 and this was followed up by an eagerly anticipated second round of LTRO in February. March was a much more mixed month for European equities which saw markets range bound for much of the month.

Fund performance

The Fund strongly outperformed the MSCI Europe index over the quarter. At sector level, the Fund benefitted most from overweight positions in Industrials as well as Consumer Discretionary.

At stock level, African Petroleum performed the best after it announced a very successful well result from their offshore-Liberia drilling campaign; the shares rallied hard to reflect the potential size of their discovery. The company is well funded and will appraise their discovery towards the end of this year. Cobham was another holding that performed well. Management have navigated a difficult environment for defence spending better than most and are delivering upon a cost saving program well ahead of schedule. The outlook for their business remains subdued, but valuation still appeals strongly to us. Renault also performed strongly as it is making good progress growing its non-European business. Cash generation, balance sheet improvement and pricing power are enabling Renault to stand out markedly from its mass-market peer Peugeot. Finally, Ruspetro contributed meaningfully. Having initiated a position in their January IPO, it is pleasing to see such a strong rally in the shares in such a short space of time. We still find valuation very compelling and back a very strong management team to execute on schedule. The worst performer was food retailer, Tesco, which disappointed the market by profit warning for the first time in 20 years. We maintain our position as we feel that expectations are now very low and that the company looks cheap on downgraded February 2013 numbers. Chemring also disappointed with its recent full year numbers and the shares performed poorly as a result.

Investment activity

We sold a large portion of our position in European Goldfields and sold our entire holding in Kalahari Minerals; both of which are in the process of being acquired. We trimmed our position in Cobham following the share price rally and continued to sell out of our holding in Gulf Keystone. We sold our entire holding in Vedanta; overall we are reducing our heavy exposure to resource-related companies as we start to see value realization from some of our key holdings. New initiations included RBS and TalkTalk. We also initiated a position in the Russian oil producer RusPetro at its London IPO. We believe that the company offers very attractive valuation, a good growth profile and that management are high quality.

Outlook

After very strong performance in January and February, March was a more subdued month for Fund performance; however, on the whole, we have started the year very well. We remain confident that European equities can continue to make progress and are still seeing attractive opportunities to deploy the Fund’s capital.

Prospectus/SAI

European Focus Fund