Consumer Staples Saved VAFAX from Further Blushes in 1Q16


Apr. 25 2016, Published 4:04 p.m. ET

Performance evaluation of the Invesco American Franchise Fund

The Invesco American Franchise Fund Class A (VAFAX) fell 5.2% in 1Q16, placing it as a below-average performer among the 12 funds chosen for this review. VAFAX fell by a sharp 4.0% for the one-year period ended March 2016.

From the end of December 2015 until April 20, 2016, the fund rose 2.1%. We have graphed its performance against two ETFs: the iShares S&P 500 Growth ETF (IVW) and the iShares Russell 1000 Growth ETF (IWF). Let’s look at what contributed to this below-average performance in 1Q16.

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Portfolio composition and contribution to returns

The healthcare sector did the most damage to VAFAX and was mainly responsible for driving down the fund’s returns in 1Q16. Alkermes (ALKS) was responsible for over 40% of the sector’s negative contributions. Vertex Pharmaceuticals (VRTX) and Celgene (CELG) were a distant second and third, respectively, in terms of negative contributions. UnitedHealth Group (UNH) marginally reduced the sector’s negative contributions.

The second-most invested sector, the consumer discretionary sector, was also the second-highest negative contributor to VAFAX’s 1Q16 returns. Amazon (AMZN) was the primary culprit behind the sector’s poor showing. Dish Network (DISH) was another major negative contributor. There was some help from Whirlpool (WHR) and Time Warner Cable (TWC), without which the sector’s returns would have been worse.

Information technology, the sector in which VAFAX invests the most, followed consumer discretionary stocks closely in terms of negative contributions. It was led downward by LinkedIn (LNKD) and ServiceNow (NOW). Facebook (FB) reduced some of the drag from the sector.

A superb showing by the consumer staples sector helped reduced quite a bit of negative contribution from several sectors. Philip Morris International (PM) and Tyson Foods (TSN) helped the sector contribute positively to a sizable degree.

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Comparison with IVW

Though VAFAX was unable to surpass the total returns posted by the iShares S&P 500 Growth ETF (IVW) in 1Q16, its stock picks from the consumer staples, energy, and industrials sectors did better than those forming the same sectors in IVW.

On the other hand, IVW’s stocks in the consumer discretionary, healthcare, and financials sectors far outdid their peers in VAFAX.

Investor takeaway

VAFAX didn’t a great time either in 1Q16 or in the year leading up to March 2016. An assessment of its performance across market cycles would be warranted for investors interested in the fund.

In the next article, we’ll take a look at the Vanguard Growth Index Fund Investor Shares (VIGRX).


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