During the latter half of the 19th century, the Ottoman Empire—now Turkey—was called the “sick man of Europe.” These days, it wouldn’t be a stretch to call Europe the sick man of the global economy. For starters, the continent’s broader economy has been snoozing since the financial crisis. And it doesn’t help that its poor demographics, characterized by an aging population, don’t portend robust future growth. Throw in government bonds offering negative yields, the potential mess that is Brexit and the possible negative impact of trade wars on European exports—along with the troubles of the eurozone’s third-largest economy, Italy—and it’s little wonder that some investors equate the E.U. with “P.U.”

But is Europe really that bad? Actually, no. It does have some compelling investment opportunities, but you need to know where to go to find them. “You have to look at it on a country-by-country basis,” says Stephen Kusmierczak, portfolio manager of the Columbia Acorn European Fund. “It is a continent, and conditions vary across countries.”

Kusmierczak’s fund has successfully identified winning trades this year, having returned 22.7% through August 8. The boilerplate description in the fund’s literature says it focuses on small- and mid-cap European companies with growth potential.

Translation: Kusmierczak generally avoids companies with heavy exposure to European consumers because, he notes, consumers are stressed in many parts of Europe. Plus, Europe generally is an older market that’s not skewed to a consumer demographic.

“We’re trying to identify really good companies that provide exposure that’s outside of Europe,” Kusmierczak says. “These companies have strong operating performance over long time periods. And they’re often in certain niches that are largely dominated by European companies, especially in industrials.”

As of this year’s second quarter, his fund’s top holding was Sectra, a Swedish company that focuses on medical imaging technology and cybersecurity. That was followed by Nemetschek Group, a German supplier of software aimed at the entire life cycle of building or infrastructure projects from design to construction to maintenance. The third-largest holding, Belimo Holding Ag-Reg, is a Swiss maker of heating, ventilation and air conditioning systems.

Beyond the prerequisite of a holding having strong operating performance, Kusmierczak also puts a strong emphasis on a company’s corporate governance, believing a firm’s culture and processes are key determinants of its long-term success. “We want companies to be in industries with good tailwinds that are durable, but we also look at corporate governance and the values behind the company,” he says. “We’re not trying to be overweight the U.K. or Sweden; those countries just happen to be—particularly in the corporate governance dimension—where we find more of these companies.”

He adds that the region comprising Germany, Switzerland and northern Italy is home to industry leaders with good corporate governance. “Some of the Czech and Polish manufacturers also fit into that group,” he says.

To Kusmierczak’s thinking, Italy exemplifies both sides of the coin regarding investing in European equities. While he praises the high-tech, advanced manufacturers found in northern Italy, he posits that the country as a whole is lacking.

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