How High Energy Exposure Hurt the ProFunds Europe 30 Investor Class in September

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Aug. 18 2020, Updated 5:14 a.m. ET

Performance evaluation

The ProFunds Europe 30 Investor Class (UEPIX) fell by 4.8% in September 2015 from the previous month. In the three- and six-month periods that ended on September 30, the fund tanked by 11.1% and 10.2%, respectively. In the YTD (year-to-date) period, the fund fell by 11.8%.

Fiscal 2015 has been harsh on the fund, primarily because its unique investment style has been unsuitable for market conditions. Across all periods under review, the fund’s performance placed it dead last among the ten funds in our analysis. It was the only fund, in fact, to post double-digit negative returns for some of the periods. Let’s look at what contributed to this poor performance.

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Portfolio composition and contributions to returns

UEPIX has been around since its launch in March 1999. According to its latest geographical disclosure, companies from the United Kingdom, the Netherlands, and France are the top three invested geographies, in that order.

The latest complete portfolio available for the fund is as of June 2015. So for our analysis, we’ll take that portfolio as our base and consider valuation changes as they stood at the end of September 2015. All portfolio percentages mentioned from here on refer to weights according to changes in valuation from June to September.

Below is a breakdown of UEPIX’s holdings:

  • The energy sector occupies the largest sectoral holding, with an exposure 21% of the fund’s assets.
  • Information technology follows, with an exposure of ~19%.
  • Financials are the third-biggest holding, with an exposure of 16%.

Now let’s look at how these sectors contributed to returns:

  • The energy sector was the biggest negative contributor to returns for September 2015. The sector was led down by Royal Dutch Shell (RDS.A), Tenaris SA (TS), and BP (BP).
  • Financials followed the energy sector and were led down by Banco Santander SA (SAN).
  • Materials and telecom services followed these two sectors. While materials was driven down by ArcelorMittal (MT), telecom services was led down by Telefónica SA (TEF).

Among positive sectoral contributors were the information technology sector, helped by Alcatel-Lucent (ALU) and Nokia Corporation (NOK).

Reasons driving poor performance

With over one-fifth of its assets invested in the energy sector, it’s no surprise that the fund performed as poorly as it did. Additionally, since the fund has a concentrated portfolio, most of it holdings performed poorly, and the positive contributions from a couple of the sectors were not enough to reduce further underperformance.

In the next part of this series, we’ll look at the next fund in our sampling of ten Europe-focused funds, the JPMorgan Intrepid European Fund Class A (VEUAX).

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