Financials: Biggest Negative Contributor to PEUGX in 1Q16

ECB Stimulus, Brexit, and 12 Europe-Focused Mutual Funds

(Continued from Prior Part)

Performance evaluation of the Putnam Europe Equity Fund

The Putnam Europe Equity Fund – Class A (PEUGX) fell 4.3% in 1Q16, making it a below-average performer among the 12 funds in this review. In the past one year, PEUGX has fallen 7.9%, again a below-average performance. Meanwhile, from the end of December 2015 until April 25, 2016, the fund has risen 1.9%. In the graph below, you can see its performance against two ETFs: the Vanguard FTSE Europe ETF (VGK) and the iShares MSCI Eurozone ETF (EZU).

Let’s look at what has contributed to the fund’s below-average performance in 1Q16.

Portfolio composition and contribution to returns

Financials, PEUGX’s biggest invested sector, was the biggest negative contributor to the fund’s returns in 1Q16. Credit Suisse Group (CS) led detractors from the sector, which included Société Générale, Prudential (PUK), and ING Groep (ING). Although Nexity, Admiral Group, and a few others contributed positively, their contributions had only a minimal impact.

Healthcare followed financials in terms of negative contribution to returns. Novartis (NVS) was far above all other negative contributors from the sector, including AstraZeneca (AZN) and Shire (SHPG). There was no positive contributor from the sector.

Telecom services fell sharply primarily due to negative contributions by Telecom Italia SpA (TI) and Cellnex Telecom. Meanwhile, Luxottica Group SpA (LUX) and Fiat Chrysler Automobiles (FCAM) weighed on the consumer discretionary sector.

Although consumer staples was the biggest positive contributor to PEUGX in 1Q16, its amount of contribution wasn’t very consequential. Kerry Group and Unilever (UN) were among the notable positive contributors.

Investor takeaways

Even though financials was the biggest negative contributor to PEUGX, its amount of negative contribution was lower than the contribution of financials to passively managed VGK. Industrials stock picks failed to perform, while telecom services surprised on the downside. PEUGX couldn’t beat VGK in terms of total returns for 1Q16.

Some investors believe PEUGX doesn’t come across as an impressive offering for investing in the Eurozone. Some may think that other mutual funds analyzed in this series present a more compelling investment option. A look at longer-term performance will give you a better idea on this.

Let’s move on to the next fund in this series: the T. Rowe Price European Stock Fund (PRESX).

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Draghi on ECB Stimulus and Brexit: Are Volatile Times Ahead?

• Part 2 - Sector Composition Changes in AEDAX until 1Q16

• Part 3 - Industrials and Discretionary Helped AEDAX in 1Q16