What Should We Think About the Passive Offering of VEURX?


Mar. 21 2016, Published 11:31 a.m. ET

Vanguard European Stock Index Fund overview

In this part, we’ll look at the Vanguard European Stock Index Fund – Investor Shares (VEURX). VEURX, all asset classes, is by far the largest fund in this review by asset size. At the end of February 2016, it was managing assets worth $18.5 billion. As of December 2015, its assets were spread across a staggering 1,251 holdings. It included stocks of companies such as GlaxoSmithKline (GSK), AstraZeneca (AZN), Daimler (DDAIF), Banco Santander (SAN), and Diageo (DEO), which made up 4.5% of the fund’s equity portfolio.

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VEURX performance

From a purely NAV (net asset value) return standpoint, VEURX stood seventh among its peer group for the one-year period until March 15, 2016. 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 hasn’t been among beneficiaries. It stood second-to-last among its peers and failed to beat both STXX and 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

VEURX’s standard deviation, or the volatility of returns, in the one-year period until March 15, 2016, was 19.2%. This is at par with 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 had placed it second-to-last among its peers.

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The information ratio, calculated with the STOXX Europe 600 Index as the benchmark, was -0.5 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

VEURX, unlike any other fund in this review, is a passively managed index fund. So its fund manager can’t take active bets and has to follow the allocation of the underlying benchmark. The fund’s large asset size shows that a lot of investors are opting to passively track a European index instead of investing in funds that take active bets. But the fund’s below-average quantitative metrics should give investors enough reason to think about actively managed funds that can possibly provide more bang for their buck compared to a passive fund.

Next, let’s look at the Virtus Greater European Opportunities Fund – Class A (VGEAX).


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