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Among the first stocks to recover following the European stock sell-off in the summer of 2011 were those based in the region but that do business all over the world. They were thought to be better bets because they could rely on growth from Asia and other areas to offset European weakness. "Those big global exporters are last year's story," says Brugere-Trelat. He's focusing instead on companies that do much of their business within Europe, saying that they offer better values. He owns retailers like Kingfisher, a London-based home-improvement chain, and German retailer Metro, for example. "It's not too late at all to buy European stocks, but don't buy something just because it's European," Brugere-Trelat says. "There are some value traps and pitfalls." As with other regional stock funds, investors should keep only a small portion of their portfolios in a European stock mutual fund, says Karin Anderson, a senior fund analyst with Morningstar. That's particularly the case if they already own broad global or world stock mutual funds, which often have hefty investments in European stocks. Investors also still face risks in the region. The unemployment rate remains high at 12.1 percent for the 17 countries that use the euro currency. Earnings for stocks in the S&P Europe 350 index are expected to be flat in 2013 from a year earlier, according to S&P Capital IQ. And even optimists say that they can't rule out another political breakdown or unexpected shock that could renew worries about European governments' still-heavy debt burdens. But the list of concerns could actually be a reason to consider European stocks, because it shows that expectations haven't climbed too high. Just as the market underestimates how much earnings can fall into a recession, it often underestimates the recovery, says Andrew Clifton, portfolio specialist for European equities at T. Rowe Price. "As always, it's about where expectations are," he says, "and we would say they've been too pessimistic."
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