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Profiting From Long-Term Trends Around the World

The managers of Julius Baer International Equity II look for big economic and industry trends. One place they're bullish: Eastern Europe.

It doesn't get much better than Julius Baer International Equity A. Over the past ten years to May 31, this dazzler (symbol BJBIX) returned an annualized 18%. If you'd been wise (or lucky) enough a decade ago to entrust $10,000 to co-managers Richard Pell and Rudolph-Riad Younes, you'd be sitting on nearly $54,000.

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Alas, this fund is closed to new investors. But the next best thing may be Julius Baer International Equity II (JETAX), a newcomer to the Kiplinger 25. Run in the same fashion by the same duo, this fund returned a scorching 40% over the past year through June 14, five points ahead of the MSCI EAFE index. This near-clone doesn't invest in small-cap foreign stocks and, since it is younger and takes new money, it has slightly different allocations from its older brother. Otherwise, it's essentially the same deal.

Younes explains that most of the fund's stocks fall into two categories. First there are stable blue chips such as Nestle -- predictable stocks that Younes and Pell are confident will beat the index over time. Next is what Younes calls long-cycle stocks -- names that he thinks will double in three years and triple over five years. What the Lebanon-born Younes looks for here are companies riding a long structural wave. For example, he's extremely bullish on Eastern Europe because he views its economic re-integration with Western Europe as a natural process that will play out over decades. The fund's two largest holdings as of March 31 were banks in Hungary and the Czech Republic.

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Younes is very much a top-down thinker who gravitates to attractive sectors. For instance, he holds large positions in two of the world's largest cement producers -- Lafarge, a French company, and Holcim, based in Switzerland. "I love cement," he says. "It's a global, consolidating industry that acts like an oligopoly."

At the other end of the glamour spectrum, he fancies luxury-product companies, such as France's LVMH Moet Hennessy, owner of Louis Vuitton and many other accessory brands, jewelry, watches and drink. As Younes explains, consumption of luxury goods is one of the first ways the new rich in emerging markets flaunt their wealth.

Somehow, Younes and Pell keep their eyes on nearly 400 stocks in this well-diversified fund. Nearly 20% of the money is in emerging-market stocks, principally in Eastern Europe. So if you're lacking foreign and emerging-market exposure, this is one fund you may want to pick up. And if you hold shares in International Equity A, keep them.

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