Call it the quiet after the storm. That's how money managers and fund analysts on both sides of the Atlantic are describing the level of investment activity four months after the introduction of the euro.

"There was a lot of euphoria about Europe last year," said Diego Espinosa, lead manager of KemperFunds' Global Blue Chip Fund, which has about $14 million of assets. "This year is the year of staying selective."

Experts still say that the adoption of a common currency by 11 European nations at the beginning of the year should be a boon both for European funds aimed at U.S. investors and for companies looking to market funds to European investors. But the benefits may show up later than many expected, they say.

Surprisingly slow economic growth and a slumping euro are dampening interest in European stocks. Industry observers say the benefits to shareholders of last year's wave of consolidation and restructuring will probably show up gradually over the next couple of years, as those deals shake out.

Europe's economic unification promises to bring more mergers, more privatization of public companies and increased trading across borders. With that should come more emphasis on shareholder value and a greater willingness by Europeans to invest across the region's borders.

The changes clearly had investors excited last year.

Americans boosted their investing in Europe stock funds by 42% in 1998 over the level in the preceding year, according Morningstar Inc., the Chicago-based fund research company.

Net assets in the more than 65 funds investing in Europe jumped to $19.5 billion at the end of October 1998, from $12.9 billion at the end of 1997. One reason is that the average European stock fund outperformed the average U.S. stock fund, 19.7% to 13.6%, according to Morningstar.

But in the first quarter of this year the average European stock fund posted a net loss of 2.6%, while the average return of U.S. stock funds was 1.1%, according to Morningstar. Not surprisingly, enthusiasm among U.S. investors for Europe funds has cooled, and assets in those funds have been flat. At the end of March, they stood at about $21.3 billion, the same as a year ago.

European investors poured $2.5 trillion into 562 mutual funds investing in Europe last year, a marked increase from the $1.9 trillion they invested in 1997, according to Lipper Inc.

And they are expected to continue warming to mutual funds, said Diana Mackay, Lipper's European business development director, with investment reaching $2.8 trillion by the end of 2000 and $6.6 trillion by 2005.

But for that to happen, Europeans will have to grow more comfortable with the idea of long-term investing. The region's governments and its banks are prompting them to do so.

Banks, under increasing competitive pressure, are looking to bolster their profits by selling more retail investments. More importantly, Europe's governments are moving to privatize their state-funded retirement plans.

Another hurdle for the European mutual fund business is the fact that economic growth is falling short of expectations.

In April, the European Commission, the executive body of the European Union, cut its 1999 growth forecast for the region to 2%, from the 2.6% estimate made in October.

The managers of Legg Mason's Bartlett Europe Fund predicted the trouble in a report late last year.

"The famed 'Goldilocks scenario' has been damaged and we would expect earnings growth to be under pressure this year on aggregate," they wrote.

The focus on short-term results is part of the reason U.S. mutual fund investors are staying home, said Clarkson Williams, a vice president and investment analyst for Pioneer Investment Fund.

"People like to stay with a winning horse," he said.

But one clear sign that mutual fund companies have faith in Europe's long-term promise is that they are launching new funds.

Massachusetts Financial Services in April rolled out four euro- denominated mutual funds aimed at European investors and registered in Luxembourg.

The two fixed-income and two equity portfolios are being sold in Europe through Credit Suisse First Boston and other distribution partners.

Fund companies are also rolling out new funds aimed at American customers.

OppenheimerFunds in March introduced the Oppenheimer Europe Fund, a diversified equity fund whose objective is to invest in "attractive European growth companies which are positioned to take advantage of the opportunities arising from a united Europe."

Guinness Flight Investment Management Ltd. in November launched its New Europe Fund, which seeks to capitalize on "the changes under way in Europe, including the introduction of the euro common currency, the conversion of Eastern European economies to capitalism, and the privatization of public companies throughout Europe."

That privatization means that investors will have a lot more companies to choose from.

Guinness Flight estimates that the value of equity offerings from privatizations between 1998 and 2008 will be $350 billion, most of which should come from Europe.

Megamergers in industries like banking and telecommunications should also produce leaner and meaner companies that pay more attention to shareholder value, observers say.

As the euro creates more of a pan-European market, some asset managers have begun to analyze stocks on a sector-by-sector basis, rather than geographically.

Nigel Emmett, a vice president and European mutual fund portfolio manager with J.P. Morgan Investment Management, says his company was among the first to adopt sector analysis.

It is all well and good that Europe is becoming a giant, unified market, but the key to investing success is the ability to uncover the best stocks in each sector, Mr. Emmett said.

"Big is not necessarily beautiful," he said. "Efficient is beautiful."

Some observers say it may not take as long as expected for Europe to hit its stride.

Neil Worsley, a comanager on the Bartlett Europe Fund, pointed out that the euro has lost strength against the dollar since its inception, dropping about 8% below its peak at the beginning of the year.

But that should actually help invigorate manufacturing in the Europe by encouraging exports to stronger economies, he said.

Dave Potts, the London-based portfolio manager who leads Guinness Flight's European equity desk, said the recent departure of Germany's finance minister-a figure whose tax-and-spend fiscal approach made him unpopular in Euroland-should spur economic growth.

"What we're seeing now is a resurgent (European) domestic economy," Mr. Potts says. "Its acceleration has been underreported."

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