Alpha Has Eluded PEUGX in One Year to March 15


Aug. 18 2020, Updated 5:18 a.m. ET

Putnam Europe Equity Fund overview

Let’s look now at the Putnam Europe Equity Fund – Class A (PEUGX). PEUGX, all asset classes, is one of the smaller funds in this review. It was managing assets worth $300.8 million as of February 2016. As of December 2015, its assets were spread across 71 holdings and included stocks of companies such as Total (TOT), ING Groep (ING), Unilever (UN), AstraZeneca (AZN), and Anheuser-Busch InBev (BUD). These companies comprise 11.4% of the fund’s portfolio.

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PEUGX performance

From a purely NAV (net asset value) return standpoint, PEUGX stood eighth among its peer group. When we refer to the peer group, we mean the group of 12 funds chosen for this review. For return comparison, we have chosen two ETFs: the ALPS STOXX Europe 600 ETF (STXX) and the SPDR Euro STOXX 50 ETF (FEZ). Since the announcement of stimulus measures by the ECB (European Central Bank) on March 10, 2016, the fund has emerged as a below-average performer in its peer group. It didn’t beat either STXX or FEZ.

For evaluating benchmark-related metrics, we’ve chosen the STOXX Europe 600 Index as the benchmark for all funds in this review.

Other metrics

PEUGX’s standard deviation, or the volatility of returns, in the one-year period until March 15, 2016, was 18.5%. This is much lower than the STOXX Europe 600 Index’s 19.2% but a shade higher than the peer group’s average of 18.4%.

The fund’s risk-adjusted returns, calculated by the Sharpe Ratio, were negative for the one-year period ended March 15, 2016. Evaluating a negative Sharpe Ratio may be misleading, so we’ll avoid that. The ratio for 2015 had placed it eighth among its peers.

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The information ratio, calculated with the STOXX Europe 600 Index as the benchmark, was -0.1 for the one-year period ended March 15, 2016. The information ratio shows the consistency of a fund manager along with measuring the ability to generate excess returns over a benchmark. The higher the reading, the better the consistency. However, we can’t evaluate a negative ratio.

A note to investors

Along with a negative information ratio, PEUGX also posted a negative alpha in the one-year period ended March 15, 2016. Unlike a negative information ratio, though, we can evaluate a negative alpha, which placed it tenth among the 12 funds in this review. Performance on this metric has worsened in 2016 year-to-date. Given its company in the peer group, the fund could find it difficult to make your shortlist, unless some aspect of its investment approach interests you.

In the next part of this series, we’ll look at the T. Rowe Price European Stock Fund (PRESX).


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