The Putnam Europe Equity Fund – Class A (PEUGX) fell 2.6% in December 2015 from the previous month. In the three-month period ending December 31, the fund remained flat. In the six-month period, it fell 5.9%. In the one-year period, the fund has returned 1.7%. Meanwhile, from the end of December until January 22, the fund has fallen 8.2%.
The latter half of 2015 was quite unpleasant for PEUGX. However, it was still able to rank fifth among the ten funds under review for its performance in 2015. Let’s look at what contributed to the fund’s performance in 2015.
Portfolio composition and contribution to returns
PEUGX has a long track record that began in September 1990. According to its latest geographical disclosure, companies from the United Kingdom, France, and Switzerland, in that order, have the highest exposure in the fund’s portfolio.
The latest complete portfolio breakdown available for the fund is from September 2015. Thus, we will take that portfolio as our base and consider valuation changes as they stand at the end of December 2015 for our analysis. All portfolio percentages mentioned from here on refer to their weights as per changes in valuation from September to December.
The industrial section, which forms less than 10% of the fund’s assets, emerged as the top contributing sector to the fund’s returns for 2015. The sector was led by Airbus Group (EADSY) and Regus. However, Siemens Aktiengesellschaft (SIEGY) and Wolseley offset some of the positive contributions from the sector.
The consumer staples sector was a distant second in terms of positive contributions to returns. Ireland-based Kerry Group (KRYAF) was a standout performer from the sector. Unilever (UN) and SABMiller (SBMRY) also contributed positively to the sector’s returns. There were no considerable negative contributions from any of the holdings in the sector.
Financials, the single largest sector, was almost inconsequential in 2015. Positive contributions from ING Groep (ING) and Partners Group Holding were almost entirely undone by negative contributions from Credit Suisse Group (CS) and Lloyds Banking Group (LYG).
Reasons for the performance
If a fund’s top sector gives a lackluster performance, it really dims the prospects of the fund in terms of returns. Add to that negative contributions from energy, healthcare, and materials, and you have the perfect recipe for a poor showing. What saved PEUGX in 2015 were its picks from the consumer staples, telecom services, and utilities sectors. Except staples, the remaining two sectors have a small share in the portfolio. But even then, they were able to contribute sizably to the fund, thus ensuring that the fund figured in the middle of the pack rather than further down.
If 2016 turns out to be troublesome for Europe, PEUGX’s generally defensive positioning may come in handy.
Let’s move on to the next fund in this series: the T. Rowe Price European Stock Fund (PRESX).