Leverage Strategy Helped UBPIX in October 2015

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Dec. 28 2015, Published 3:00 p.m. ET

Performance evaluation

The ProFunds UltraLatin America Class A (UBPIX) fell 10.4% in November 2015 from a month prior. In the three- and six-month periods ended November 30, the fund fell 19.8% and 46.9%, respectively. In the one-year period, it fell 65.1%, and from November’s end until December 24, the fund fell 9.0%. In the YTD (year-to-date) period, the one we’ll be analyzing, the fund has returned -55.7%.

The fund has finished dead last among the eight funds in this review, primarily because of its leverage strategy.

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Portfolio composition and contribution to returns

The UBPIX was launched in October 2007. According to its latest geographical disclosure, Brazil, Mexico, and Chile are its top three invested geographies, in that order, making up 93.6% its assets.

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

As was discussed in the previous article, UBPIX is a leveraged fund. Since its leverage multiple is 2, this means that on a daily basis, the fund provides returns that are theoretically twice that of its underlying index, the BNY Mellon Latin America 35 ADR Index. The sharp fall in the fund for the YTD period through November must be considered in the same manner.

The consumer staples sector was the biggest negative contributor to UBPIX’s returns in YTD 2015 through November. BRF (BRFS) and Companhia Brasileira de Distribuicao (CBD) were its top two negative contributors. However, positive performances by Fomento Económico Mexicano (FMX) and Gruma reduced further negative returns.

The financials sector was led down by Banco Bradesco (BBD), while Vale (VALE) and Cemex (CX) drove down the materials sector, the third-biggest negative contributor to returns.

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Petrobras (PBR) and Ecopetrol (EC) dragged the most on the energy sector, while LATAM Airlines Group (LFL) was the biggest negative contributor in the industrials sector. The industrials sector was helped a bit by positive contributions from Grupo Aeroportuario del Sureste (ASR) and Grupo Aeroportuario del Pacífico (PAC).

Reasons for performance

The fund has fared the worst among its peers due to its leverage strategy. Being a leveraged fund with a multiple of two means that it always sees nearly double the impact of market movement, whether that is a rise or a fall.

In the last article of this series, we’ll look at the overall picture that emerges from this analysis.

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