Difficult Times for HFEAX: Will It Last?

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Henderson European Focus Fund overview

In this part, we’ll look at the Henderson European Focus Fund – Class A (HFEAX). HFEAX, all asset classes, is a large fund, the second largest by asset size among the funds in this review. It was managing assets worth $3.3 billion as of February 2016. As of December 2015, its assets were spread across 74 holdings and included stocks of companies such as Alcatel-Lucent (ALU), Nokia (NOK), AstraZeneca (AZN), Barclays (BCS), and ASML Holding (ASML). These companies comprise a combined 16.7% of HFEAX’s assets.

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HFEAX performance

From a purely NAV (net asset value) return standpoint, HFEAX had a terrible one-year period until March 15, 2016, coming in at the second-to-the-last spot 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 done very well. It’s one of six funds that has outperformed STXX and one of four that have outperformed 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

FEAX’S standard deviation, or the volatility of returns, in the one-year period until March 15, 2016, was 19.0%. This is a little lower than the STOXX Europe 600 Index’s 19.2% but 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 placed it seventh among its peers.

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The information ratio, calculated with the STOXX Europe 600 Index as the benchmark, was -0.2 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

HFEAX has had a difficult time in the one-year period until March 15, 2016. Along with the information ratio, the fund’s alpha for the period was also negative and placed it second-to-last among the funds in this review. Year-to-date, 2016 has been no better, as volatility of returns has been the second highest and alpha the lowest among its peers. HFEAX has seen better times in the past. An evaluation of its performance over a longer time frame may give you a better idea regarding whether this fund could work for you.

In the next article, we’ll look at the BlackRock EuroFund – Investor A Shares (MDEFX).

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