The Franklin Mutual European Fund: Time to Reevaluate

By

Updated

The Franklin Mutual European Fund: Overview

We’ll be analyzing the Franklin Mutual European Fund – Class A (TEMIX) in this article. The Franklin Mutual European Fund (all asset classes) is among the top three funds according to asset size in this review. It was managing assets worth $2.8 billion as of January 2016. As of December 2015, its assets were spread across 78 holdings and included stocks of Nokia (NOK), Deutsche Telekom (DTEGY), XL Group (XL), Koninklijke Philips (PHG), and UniCredit (UNCFF).

Article continues below advertisement

The Franklin Mutual European Fund’s performance

From a purely NAV (net asset value) return standpoint, investors in the TEMIX would like to forget its performance in both the one-year period ended February 16, 2016, as well as in 2015. It placed last in the former period and tenth in the latter among the 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 TEMIX’s standard deviation, or the volatility of returns, in the one-year period ended February 16 was 17.7%. This is lower than both the STOXX Europe 600 Index’s 18.7% and the peer group’s average of 18.0%.

The fund’s risk-adjusted returns, calculated by the Sharpe ratio, were -1.0, compared with the STOXX Europe 600’s -0.69 for the one-year period ended February 16. Even for 2015, the fund’s Sharpe ratio was negative, making it one of only two funds to report a negative ratio.

Article continues below advertisement

The information ratio, calculated with the STOXX Europe 600 Index as the benchmark, was -1.3 for the one-year period ended February 16, making it one of the three funds in this review to have a negative ratio. Even for 2015, its information ratio was negative. 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. However, we can’t evaluate a negative information ratio.

A note to investors

While the TEMIX did not report negative values for the Sharpe and information ratios, its alpha for both the one-year period ended February 16 and 2015 was negative. Investors may not want to have this fund on their shortlist at this juncture. Those who are invested may need to reevaluate their investment. This is just the numbers speaking though. Investors looking for a certain investment style may want to dig deeper and see if this fund fits. In the next article, we’ll look at the JPMorgan Intrepid European Fund – Class A (VEUAX).

Advertisement

More From Market Realist