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Divided Europe holds investment opportunities, risks

Joyce Gordon
Porfolio counselor
Based in:
Los Angeles office
Investment experience:

JOYCE GORDON: Europe is really in two pieces. If you look at Northern Europe, including the U.K., Germany and the countries across the north, they’re in decent shape. They’re coming out of the recession. We’re seeing pretty good order growth, and there are a lot of opportunities there to invest and to pick up that turn.

When we think about investing in these areas, I like to be paid to wait, and I don’t mind doing that at all. And what I mean by that is, you can invest in a company with a big dividend yield, where the dividend is safe, so that you’re getting that dividend every single year while we are waiting for the economy to turn. Once the economy turns, earnings come up, you get growth in the dividend [and] you get price appreciation in the stock. I’d like to do that all day. But you need to be very careful in making sure that you’re not in front of a dividend cut and that the company you’re investing in is strong enough.

I recently came back from a trip to Sweden where I saw 18 companies in three days. And I was really pleasantly surprised at the quality of the companies in Sweden: very well-managed companies. They have a very strong currency, which hurts them in exporting. But they sell into Europe, they’re very high-quality balance sheet [and] they have high dividend yields.

When people ask me where’s the greatest opportunity for appreciation, it’s probably Southern Europe. And what do I worry about the most? It’s probably Southern Europe. Because you can find inexpensive companies that have good long-term growth prospects once we get through this, but the risk is that the government taxes them in order to pay their bills. It comes out of left field. It’s very difficult to analyze it ahead of time, so one has to be very wary when investing in those countries, because some countries are more likely to do it to you than others. But it’s a real issue.

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Investing outside the U.S. involves additional risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries.

Capital Research and Management Company, the investment adviser to the American Funds, manages equity assets through three investment divisions. These divisions make investment and proxy voting decisions independently.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

The statements included here are the opinions and beliefs of the speaker(s) expressed at the time the commentary was recorded and are not intended to represent those persons' opinions and beliefs at any other time.