Europe on 40 ‘Dogs’ a Day
Payden & Rygel is betting that European stock markets will go to the dogs.
The Los Angeles-based investment firm earlier this month introduced a mutual fund that has given the popular “Dow dogs” investment strategy a foreign twist.
The new Payden & Rygel European Growth & Income Fund holds 40 of the highest-dividend-paying stocks from Britain, France, Germany and the Netherlands. The idea is to invest in strong yet reasonably priced companies from those four nations.
Payden & Rygel unofficially calls its new fund a “Euro dogs” portfolio, in honor of the Dow stock-picking approach after which it is loosely patterned. Payden & Rygel is among the companies that offer Dow dogs funds.
Investors who pursue a Dow dogs strategy spread their money among the 10 U.S. stocks within the 30-stock Dow Jones industrial average that offer the juiciest dividends at any moment. Because a stock’s yield rises as its share price declines, these 10 firms can be viewed as the most out-of-favor companies within the Dow. The approach thus is a contrarian one.
Payden & Rygel European Growth & Income borrows from that approach. However, as noted, the fund picks from among stocks in four countries, and it doesn’t use a single European stock index as a source of ideas. Also, the fund’s managers may exclude certain high-dividend stocks from their portfolios, for any number of reasons. Thus, it’s not a passive investment approach.
For example, the fund’s managers might exclude a stock if they already hold several companies from the same industry.
“We want a little latitude so that we’re not trapped with certain selections,” says Joan Payden, president of the firm. “But with one or two exceptions, what we own are the 40 highest yielders.”
Another difference is that the Euro dogs approach really isn’t a contrarian one, Payden says. That’s because European firms paying some of the heftiest dividends tend to be growing companies able to support such payouts.
In the United States, by contrast, growth companies commonly pay little in the way of dividends.
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Dividends thus are viewed differently in Europe than they are in America, where investors seem more interested in seeing companies use profits to buy back shares or retire debt, for example, rather than pay out more in cash dividends. “The psychology over there is more in favor of dividends,” Payden says.
The stocks in which Payden & Rygel’s European fund invests are currently yielding an average of about 3.6%. By contrast, only two Dow stocks yield more than that (Philip Morris, at about 3.9%, and AT&T;, at about 3.8%).
Payden & Rygel says $10,000 invested in its Euro dogs strategy would have risen to $36,774 over the decade ended Dec. 31, compared with $27,377 for the average European fund tracked by Chicago-based researcher Morningstar.
However, back-tested simulations such as this should be taken with a grain of salt because there’s no guarantee that they will repeat in the future.
A focus on large stocks trading in active markets will allow Payden & Rygel European Growth & Income to keep fund management costs low, the firm said. Shareholders face an estimated 0.70% in annualized expenses, less than half the charge of a typical international mutual fund. The fund is no-load.
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The clear, focused investment approach pursued by Payden & Rygel European Growth & Income offers some interesting possibilities for portfolio-building.
For example, you could buy the fund in conjunction with a small-stock foreign portfolio such as Invesco European Small Company (no load; [800] 525-8085). This way, you would know precisely how much money you have allotted to both large and small European firms.
By contrast, most broad-based international funds have leeway to vary this mix and often do so without warning investors.
Another possibility would be to own the fund along with Papp America-Abroad, a Phoenix-based fund that invests in U.S. multinationals. Combining these two products would allow you to bet on expanding global trade from the U.S. and Europe. The no-load Papp fund ([800] 421-4004) enjoys a top five-star rating from Morningstar Inc.
You might even consider holding the Euro dogs portfolio along with the Payden & Rygel Growth & Income Fund, which follows a modified Dow dogs approach by splitting half its assets among the 10 highest-yielding Dow companies and the Standard & Poor’s 500 index.
Payden & Rygel Growth & Income, which debuted in late 1996, is up about 19% so far this year. Owning the two Payden & Rygel products would provide high-yielding stocks from two continents.
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One problem with the European fund, however, is its size. With just $3 million in assets so far following a June 30 launch, it’s too tiny to be listed in newspaper tables.
Even so, shareholders can call the company ([800] 572-9336) for price quotes. The same phone number can be used to obtain a prospectus.
Investors also should note that, as with any foreign fund, your returns also are subject to the vagaries of currency market swings.
Among the top companies currently in the fund:
* Britain: BAT Industries (tobacco) and Royal & Sun Alliance Insurance.
* France: Pernod Ricard (beverages) and Societe Generale (financial services).
* Germany: BASF (chemicals) and Bayer (chemicals).
* The Netherlands: ABN Amro Holdings (financial services) and Royal Dutch Shell (petroleum).
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Russ Wiles is a mutual fund columnist for The Times. He can be reached at russ.wiles@pni.com
