How Stock Picks Helped the Putnam Europe Equity Fund in September


Oct. 28 2015, Updated 3:36 p.m. ET

Performance evaluation

The Putnam Europe Equity Fund Class A (PEUGX) fell by 3.0% in September 2015 from the previous month. In the three- and six-month periods ending on September 30, the fund fell by 5.9% and 3.6%, respectively. However, in the YTD (year-to-date) period, the fund was up by 1.8%—one of only four funds in this review to have posted positive returns in the period.

The fund consistently figured among the top three funds in this review across periods. Let’s look at what contributed to this performance.

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Portfolio composition and contributions to returns

PEUGX has a long track-record, having been created in September 1990. According to its latest geographical disclosure, companies from the United Kingdom, France, and Switzerland are the top three invested geographies, in that order.

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

Here’s a breakdown of PEUGX’s holdings and contributions:

  • Financials, consumer discretionary, and healthcare were the top three sectors, in that order, that the fund was invested in at the end of September 2015. This is slightly different from this time in 2014, when consumer staples was the third biggest sector, instead of healthcare.
  • Financials were the biggest negative contributors to the fund’s overall returns for September 2015. The underperformance of Credit Suisse Group AG (CS) led the sector down. It was closely followed by negative contributions from France’s Natixis, and the Netherlands’ ING Groep NV (ING).
  • Financials were followed by negative contributions from the healthcare sector, which was led down by Novartis AG (NVS), and Shire (SHPG). The ADR (American Depository Receipt) of Grifols, SA (GRFS) made a positive but relatively immaterial contribution to the sector’s returns.
  • Consumer discretionary and industrials followed healthcare in terms of negative contribution to returns. Spanish media group Atresmedia Corporación de Medios de Comunicación SA led the consumer discretionary sector down, but positive contributions from Thomas Cook Group and Luxottica Group (LUX) helped reduce the drag on the sector.

Meanwhile, industrials were led down by Siemens AG (SIEGY) and Airbus Group SE (EADSY).

Reasons for strong showing

Although PEUGX’s top three sectors contributed most to the fund’s negative returns in September, an important feature that led to its strong performance was stock picks across sectors, which reduced the drag on performance. More often than not, there were a few stocks in each sector that contributed positively to returns, leading to an overall strong sectoral performance.

In the next part of this series, we’ll move on to the next fund in our series, the T. Rowe Price European Stock Fund (PRESX).


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