Performance evaluation of the Virtus Greater European Opportunities Fund

The Virtus Greater European Opportunities Fund – Class A (VGEAX) rose 1.3% in 1Q16. It was the only fund to post gains for the period, making it the best of the 12 funds in this review. In the past one year, VGEAX has risen 5.1%, which is also the best performance among its peers. Meanwhile, from the end of December 2015 until April 25, 2016, the fund has risen 0.6%. In the graph below, you can see its performance against two ETFs: the Vanguard FTSE Europe ETF (VGK) and the iShares MSCI Eurozone ETF (EZU).

Let’s look now at what contributed to VGEAX’s spectacular performance in 1Q16.

Consumer Staples Delivered Top-Notch Performance for VGEAX

Portfolio composition and contribution to returns

VGEAX’s very high exposure to consumer staples stocks worked for the fund in 1Q16. The sector powered the fund ahead. Philip Morris International (PM) was the biggest positive contributor in the sector and was closely tailed by British American Tobacco (BTI). There were a few negative contributors, but the amount was very minimal.

VGEAX’s stock picks from the materials sector did very well in the period, emerging as the second-highest sectoral positive contributor. The sector was led by one stock: Randgold Resources (GOLD). The fund was invested in the common stock and the ADR (American Depository Receipt), both of which were sector leaders. Novozymes (NVZMY) was a tiny negative contributor.

Accenture (ACN) powered the information technology sector almost all by itself.

Healthcare stocks emerged as the biggest sectoral drag on the fund. They were led down by Roche Holding (RHHBY). Novo Nordisk (NVO) and Bayer (BAYZF) also contributed negatively. Fresenius Medical Care (FMS) contributed positively, but its amount was too small to make any material impact.

Financials was almost singlehandedly led down by UBS Group (UBS). Lloyds Banking Group (LYG) was a distant second.

Investor takeaways

Fund management has been spot on with its securities selection. Even with no exposure to the energy sector, which has done well recently, VGEAX was able to beat all its peers, whether actively or passively managed, hands down.

Except for healthcare and industrials where VGEAX’s stock picks did a little worse than those of passively managed VGK, the mutual fund beat the ETF convincingly.

A note of caution, though. Just because a fund has done well in the recent past doesn’t mean you should blindly flock to it. As you may have seen, VGEAX is quite concentrated, both in terms of the number of stocks it invests in and the high allocation to consumer staples. It’s yet to be seen if fund management can continue the good run by judiciously picking securities once the situation in Europe changes.

However, for those who don’t mind concentrated funds, VGEAX could be a contender for your portfolio.

In the last part of this series, we’ll take a look at the overall picture that emerges from this analysis.

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