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Flying under the radar in former Soviet airspace

Fund name: Metzler/Payden European Emerging Market Fund (MPYMX)

Objective: Long-term capital appreciation through equity investments in Russia, Turkey, and eastern and central Europe.

Adviser: Metzler/Payden is a joint venture between an American and a German investment firm. The American firm is Payden & Rygel, which has $54 billion under management. The German firm is MP&R Ventures, an affiliate of a large Frankfurt financial institution with €20 billion under management.

Manager: The fund is team-managed with members from each of the partner firms. The lead manager is Markus Brueck, a portfolio manager and Senior Vice President at Metzler.

Inception: December 20, 2002

Three-year return: 53.4% per year

Standard deviation: 21

Five-year return: N/A

Minimum investment: $5,000, reduced to $2000 for retirement accounts or for investors who agree to an automatic investment plan of $250 per month.

Expense ratio: 1.25% after waiver (but only 1.5% even if there were no waiver)

David's comments: "Emerging Europe" - generally, Russia, the states of the old Soviet bloc, and sometimes Turkey - has been the world's hottest market for several years now. Two of the leading emerging Europe funds -- U.S. Global Investors Eastern Europe (EUROX) and T. Rowe Price Emerging Europe and Mediterranean (TREMX) -- have produced absolutely breathtaking returns in the range of 60% per year over the past three years.

Metzler/Payden offers an interesting alternatives for those interested in the region. It offers a combination of experienced management and lower expenses than either of the others, despite having an asset base only one-twentieth as big. Its portfolio is widely spread across market caps but technically "non-diversified," has a lot of exposure to energy and materials stocks, and it tilts - as do the others - toward "growth" stocks but also companies whose earnings are growing quickly. And the fund has the option of hedging its currency exposure. At the same time, it offers many of the same portfolio characteristics - low correlation to the EAFE, standard deviation, Sharpe ratio and so on - of the other two.

Is Metzler/Payden clearly superior to EUROX or TREMX? No, not at all. But with only $60 million in assets, investors looking for an entirely-credible stake in eastern Europe really ought to pause at this five-star option rather than turning automatically to either of The People's Choice funds.

Company link: http://www.metzlerpayden.com/mutualFunds/emfrm/default.asp

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April 1, 2006