Why Quantitative Metrics Don’t Favor AXEAX



Columbia European Equity Fund overview

In this part, we’ll be looking at the Columbia European Equity Fund – Class A (AXEAX). AXEAX, all asset classes, is a comparatively smaller fund among the funds in our review. It was managing assets worth $487 million as of February 2016. As of December 2015, its assets were spread across 62 holdings and included stocks of companies such as Roche Holding (RHHBY), Unilever (UL), Bayer AG (BAYZF), BT Group (BT), and CRH (CRH). These companies comprise 15.0% of the fund’s portfolio.

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AXEAX performance

From a purely NAV (net asset value) return standpoint, AXEAX was an above-average performer for the one-year period until March 15, 2016. It was placed fifth for the period 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’s returns have placed it seventh, and it has underperformed 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

AXEAX’s standard deviation, or the volatility of returns, in the one-year period until March 15, 2016, was 19.5%. This is higher than both the STOXX Europe 600 Index’s 19.2% and the peer group’s average of 18.4%.

The fund’s risk-adjusted returns, calculated via 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. That ranked it eighth among all the funds in this review. 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.

A note to investors

Along with below average consistency of returns, the fund’s alpha generation during the one-year period ended March 15, 2016, has placed it eighth among its peers. In 2016 year-to-date, while its information ratio is negative and thus not able to be evaluated, its alpha has placed it in the bottom three performers. The volatility of its returns remains high, although some of its peers have surpassed it in this measure. Strictly quantitatively speaking, the fund doesn’t find itself in a good place right now.

In the next article, we’ll look at the Brown Advisory – WMC Strategic European Equity Fund – Investor Shares (BIAHX).


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