AXEAX: What Should We Be Concerned about in 2016?

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The Columbia European Equity Fund: Overview

We’ll be analyzing the Columbia European Equity Fund – Class A (AXEAX) in this article. Among its peer group, the Columbia European Equity Fund (all asset classes) is a comparatively smaller fund. It was managing assets worth $512 million as of January 2016. As of December 2015, its assets were spread across 62 holdings and included stocks of Roche (RHHBY), Unilever (UL), Bayer (BAYZF), BT Group (BT), and CRH (CRH), which comprise 15.0% of the fund’s portfolio.

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The Columbia European Equity Fund’s performance

From a purely NAV (net asset value) return standpoint, the AXEAX was a below-average performer, placing sixth in the one-year period ended February 16, 2016, and seventh for 2015 among the group of 12 funds chosen for this review. For a returns comparison, we’ve chosen two ETFs: the ALPS STOXX Europe 600 ETF (STXX) and the SPDR EURO STOXX 50 ETF (FEZ).

Other metrics

The AXEAX’s standard deviation, or the volatility of returns, in the one-year period until February 16 was 19.1%. This is higher than both the STOXX Europe 600 Index’s 18.7% and the peer group’s average of 18.0%, and it was the second highest among its peers for the given period.

The fund’s risk-adjusted returns, calculated by the Sharpe ratio, were -0.53, compared with the STOXX Europe 600’s -0.69 for the one-year period ended February 16. Rather than evaluating a negative Sharpe ratio, let’s look at its ratio for 2015. It stood at 0.25 against the index’s 0.02, indicating a better performance. However, it placed eighth for its ratio among its peers for that year.

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The information ratio, calculated with the STOXX Europe 600 Index as the benchmark, was 1.0 for the one-year period ended February 16, ranking the fund fourth among all the funds in this review. The information ratio measures the fund manager’s consistency and ability to generate excess returns over a benchmark. The higher the reading, the better the consistency. Investors should remember that we can’t evaluate a negative information ratio.

A note to investors

The AXEAX’s alpha for the one-year period ended February 16 placed fifth among the 12 funds in this review. For 2015, its alpha stood at the bottom half of the pack. The fund’s quantitative metrics provide a mixed picture, but volatility remains a clear concern. If 2016 sees more volatility than 2015, then the fund’s risk-adjusted performance may take a bigger hit. In the next article, we’ll look at the Brown Advisory – WMC Strategic European Equity Fund – Investor Shares (BIAHX).

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