In August 2015, the ProFunds UltraLatin America Inv Fund (UBPIX) nose-dived, declining by 19.4% from the prior month, which represents the biggest fall among the eight funds we’ve analyzed in this series. In the three-month period that ended August 31, the fund was down by 33.7%, while in the six-month period, it was down by 42.3%. In the YTD (year-to-date) period, the fund was down by 44.8%.
As we observed in the preceding part of this series, UBPIX is a leveraged fund. Since the leverage multiple is 2, this means that, on a daily basis, the fund provides returns that are theoretically two times that of its underlying index, the BNY Mellon Latin America 35 ADR Index. And so UBPIX’s sharp fall in returns has to be considered in the same manner—as twice the daily movement in the index. Since Latin American economies have had a hard time in 2015, equity markets in these nations have fallen, resulting in sharp negative returns for all associated instruments.
Portfolio composition and contribution to returns
UBPIX’s portfolio was focused on the consumer staples, financials, and energy sectors, with exposures of 30.6%, 17.8%, and 14.0%, respectively. The materials sector was a distant fourth, forming 10.2% of the fund’s assets. Investors should note that the fund doesn’t employ top-down or bottom-up analysis to construct its portfolio. So this sectoral exposure doesn’t indicate sector-level calls made by the fund manager—it merely reflects the composition of the underlying index.
The top three sectors in the fund—consumer staples, financials, and energy—were the three biggest negative sectoral contributors to returns in August 2015, in that order. Consumer staples were dragged down by Brazilian companies BRF (BRFS), Ambev (ABEV), and Companhia Brasileira de Distribuicao (CBD).
Among other major negative contributors to returns, Brazil’s Ultrapar Participacoes (UGP) led the energy sector down and Embraer (ERJ) led the industrials sector down, Vale (VALE) led the materials sectors down, Telefônica Brasil (VIV) led the telecom sector down while CPFL Energia (CPL) dragged the utilities sector down.
Caution to investors
UBPIX returned a superlative 227.2% in 2009. However, 2015 shows the risk these kinds of funds pose. Though triple-digit returns are impressive, you can see declines of the same degree—in 2008, for example, the fund saw an 86.6% decline. So you should consider these facts.
This concludes our series on the performance of eight Latin American-focused mutual funds. For more analysis on these products, visit Market Realist’s Mutual Funds page.