Performance evaluation

The Virtus Greater European Opportunities Fund – Class A (VGEAX) fell 0.4% in December 2015 from the previous month. In the three-month and the six-month periods ended December 31, the fund rose 4.3% and 2.3%, respectively. In the one-year period, the fund has returned 6.8%. Meanwhile, from the end of December until January 22, the fund has fallen 5.5%.

Due to a terrible November, the fund finished at the second spot in the three-month period ended in December. However, for all other periods, it was the best performer among the ten funds in this review. Let’s look at what has contributed to the fund’s strong performance in 2015.

Stock Picks Worked Well for VGEAX in 2015

Portfolio composition and contribution to returns

The VGEAX has the second smallest track record among the ten funds in this review. It has been in existence since April 2009. According to its latest geographical disclosure, companies from the United Kingdom, Switzerland, and France, in that order, have the most weight in the fund.

The latest complete portfolio available for the fund is as of 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.

Consumer staples, the fund’s largest sectoral holding, also emerged as the biggest positive contributor to the fund in 2015. Fund managers’ stock picks from the sector put up an almost flawless performance. Only one stock, Diageo (DEO), emerged as a detractor. The sector was led by Reckitt Benckiser Group and also included Philip Morris International (PM), Unilever (UN), and SABMiller (SBMRY).

Paddy Power and Domino’s Pizza Group, a franchise of Domino’s Pizza (DPZ), powered the consumer discretionary sector ahead. However, there was a potent negative contributor, Compagnie Financiere Richemont, which reduced the positive contributions. Meanwhile, Novo Nordisk (NVO), Grifols (GRFS), and Fresenius Medical Care AG & Co. KGAA (FMS) helped the healthcare sector up.

Reasons for the excellent performance

If the top three invested sectors of a fund do well, it gives the fund strong footing as far as performance is concerned. An absence of strong detractors across most sectors was icing on the cake for VGEAX in 2015. Financials didn’t do well, with Banco Bilbao Vizcaya Argentaria (BBVA) driving the sector’s contribution into negative territory singlehandedly.

Even with a small portfolio, both in terms of the number of stocks as well as asset size, stock picks by fund managers worked well in 2015. Giving all the credit to the fund’s sectoral allocation, though, would not be warranted. Fund managers’ stock picks worked for the most part, giving the fund enough thrust to navigate 2015 well.

In 2016, it will be interesting to see how the fund’s unique positioning works for the fund. Speaking generally, the fund seems positioned well if economic conditions were to worsen for Europe.

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

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