Europe's Mushrooming Mutuals

For many a European housewife last week, the most prized present of all was a stack of engravings that owed nothing to art but everything to the Continent's newest and fastest-growing investment trend--mutual funds. Tantalized by bullish stock prices and the Common Market's bright prospects, small European investors are buying into mutual funds as never before. Where only a handful of Continental funds existed prewar, Western Europe now boasts some 200 open-end and mixed investment trusts with well over 2,000,000 shareholders and total assets of about $4 billion.

Prison for Peddlers. European mutual funds do business quite differently from U.S. funds. Peddling stock door to door, as is done in the U.S., is punishable by prison in many European countries. Instead of being operated by professional fund managers, the European funds are generally run by banks. One reason: with no government agencies as prying as the SEC to bother them, European companies keep their affairs so secret that only bankers can get enough information to know which companies are sound investments. Bank distribution--which means lower overhead--also has the advantage of keeping the loading charges on European funds down to 3% to 4%, v. 7% to 8% on most U.S. funds.

The impetus for the current European boom in mutual funds began with the return to convertibility of most European currencies. Excited by the prospect of being able to invest abroad and take home their profits in hard francs, Swiss bankers hurried to set up a clutch of new mutual funds. The Swiss master of mutuals is a Zurich banker named Ernest Renk, who runs a combine called Intrag for the giant Union des Banques Suisses and three smaller banks. Intrag manages ten separate mutual funds with combined assets of $500 million, specializing in investments in different parts of the world.

Renk's funds have set the style for the rest of Europe. His goal, he explains, is growth, not dividends. "We should not bother the shareholders too often with cashing coupons," says Renk grandly. True to Renk's word, his funds return only about 2% annual earnings. But they do grow. The per-share value of Intrag's North American fund has increased a whopping 25% in the past eleven months.

Soaring Shares. The Common Market has put the topping on the European fund boom. Two years ago, a syndicate of banks from six European countries headed by Brussels' Banque Lambert set up a mutual fund, EURUNION, in Luxembourg, where mutual funds are exempt from taxes. Spreading its investment among 93 Common Market companies, EURUNION has increased its assets from $12 million to $33 million in two years. EURUNION's archrival, VALEUROP, which is run by another syndicate of banks including the Amsterdamsche Bank, Banque de la Societe Generale de Belgique and the Deutsche Bank, also boasts a spectacular record: $100 invested in VALEUROP 18 months ago is now worth $195.

Not surprisingly, prosperous West Germany is today one of Europe's biggest hotbeds of mutual funds. In 1956 the Deutsche Bank, under its imaginative chief, Hermann Abs (TIME, Dec. 15), established the Investa Mutual Fund, whose holdings have soared from $58 million to $161 million. Next largest German mutual fund is Concentra, which is sponsored by Frankfurt's Dresdner Bank, has $124 million in assets and hooks customers with a clever come-on: "For $25 become a stockholder in 30 first-rank companies."

Liquor Assets. The boom has launched some oddities. Three Swiss funds invest solely in Scotch whisky futures, betting that the drinking public's thirst will force up prices by the time the liquor matures. In one of the whisky funds, an investor who wants to withdraw can, if he wishes, literally convert his shares into liquid assets. Another Swiss fund called "Berlin 1961" promised that its investments would go entirely to beleaguered West Berlin--a proposal that enraged Swiss bankers, who contended that the idea compromised Swiss neutrality.

The Swiss government is at last getting around to drawing up regulations for investment companies. But in much of Western Europe, outdated government policies still hamper the funds' progress. In France, the government has yet to put into effect a law authorizing French open-end funds--but allows foreign-based funds to be sold. In Italy, to skirt laws against mutual fund operations, the sponsors of Interitalia, a fund specializing entirely in Italian shares, decided to incorporate in Luxembourg.

Americans who wish to buy shares in European funds also run up against government obstacles. At present, no European open-end fund can be distributed by brokers in the U.S. because so far none has chosen to make the kind of disclosure or to accept the restrictions on investment policy that registration with the SEC would involve. But there is nothing to stop a U.S. investor from buying European fund shares through a European bank--and presumably some have. The secretive bankers of Switzerland admit that more than half the shareholders in their mutual funds are foreigners.

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