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May 26, 2005, 12:17 p.m. EDT

Spanish buys

Ivy fund manager likes Iberian real estate, energy sectors

By John Ittner, MarketWatch

NEW YORK (MarketWatch) -- Thomas Mengel foresees a long reign from Spain.

The manager of the Ivy International Value Fund (NAS:IVIAX) is finding that Spanish stocks offer the relatively low earnings multiples, strong cash flow and high dividend payouts that meet his investment criteria.

Mengel took over the fund in December 2002 and the $19.1 million fund's performance has been sound since then. Its Class A shares'18.9% gain over the 12 months through May 24 tops the category's 15.3% average rise. The fund's three-year annualized 6.5% return is in line with its peers' 6.2% average gain.

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Among Mengel's favorites is Fadesa Inmobiliaria SA , a Spanish real estate developer.

Spain has a booming real estate market and appeals to people from colder European countries who are looking for warmer climes in "the Florida of Europe," Mengel said.

"Spain has been relaxed about developers getting new land and Fadesa has been buying that land very cheap," he said. "They have a good relationship with the government so they are able to get permits to build."

Fadesa is the fund's biggest position at 2.5% of assets. On Wednesday, shares of the company rose 72 cents to $25.13.

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Another Spanish company fitting his bill is Enagas SA a gas distributor with a near monopoly in the country.

The investment is based on Europe's movement to cleaner power, Mengel said. The answer to cleaner electrical generation is natural gas with its low emissions as - with the exception of France - European countries are moving away from nuclear power.

"Most new capacity will be gas powered, and Enagas will benefit from that," Mengel said, adding that the valuation is reasonable and the regulatory framework favorable.

He especially likes the pipelines Enagas owns. "It's a huge asset they have without any competition," he said.

One potential downside he sees would be sharply rising interest rates in Europe, but he doesn't expect that.

"In Europe, interest rates are coming down, and as long as this lasts the stock will be OK," Mengel said.

Shares of Enagas lost 4 cents on Wednesday to $12.65.

Venturing from the Iberian Peninsula, Mengel also sees value in Japan.

/zigman2/quotes/200116166/delayed SHMDF 158.50, -1.50, -0.94%
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Shimano Inc. (OTC:SHMDF) , the Japanese maker of quality recreation equipment, bicycle components and fishing gear, is appealing to Mengel for its ability to stand up to competition from China and for its "branding power."

"They have been good with new trends like the worldwide fitness obsession and more and more people are getting their equipment," he noted.

One issue with Shimano, Mengel said, is that it's getting "a bit mature." Now he's debating whether to hold the shares or switch to another stock with more growth potential, though he said he's generally positive about the stock.

Shimano shares closed Wednesday at $29.86, up 41 cents.

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