Financials Hurt AXEAX in 1Q16

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Apr. 28 2016, Published 4:33 p.m. ET

Performance evaluation of the Columbia European Equity Fund

The Columbia European Equity Fund – Class A (AXEAX) fell 3.7% in 1Q16, making it a below-average performer among the 12 funds in this review. In the past one year, the fund fell 7% but still emerged as an above-average performer in its peer group. Meanwhile, from the end of December 2015 until April 25, 2016, AXEAX rose 1.0%. 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 at what contributed to AXEAX’s below-average performance in 1Q16.

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Portfolio composition and contribution to returns

Financials, the joint largest invested sector of AXEAX, was the biggest negative contributor to the fund’s returns in 1Q16. UBS Group (UBS) led negative contributors, which included ING Groep (ING), Intesa Sanpaolo SpA (IITSF), and Prudential (PUK). The absence of any sizable positive contributor ensured that negative contributors had their say in directing the sector’s returns.

Healthcare was a distant second to financials in terms of negative contribution. Novartis (NVS), Bayer (BAYZF), and Roche Holding (RHHBY) were among the major detractors from the sector. Although Fresenius Medical Care (FMS) contributed positively, the amount proved inconsequential.

Fund managers’ decision to increase exposure to consumer staples helped, and the sector emerged as the biggest positive contributor. Unilever (UL) powered the sector ahead along with British American Tobacco (BTI). There were no major detractors, which worked well for the fund in general and the sector in particular.

Industrials also helped reduce the drag on AXEAX’s returns. KONE Oyj and Sandvik were among the sizable positive contributors.

Investor takeaways

Negative contribution from financials, consumer discretionary, and healthcare outdid positive contributions from consumer staples and industrials. This resulted in a below-average quarter for AXEAX.

The fund underperformed VGK, with stock picks from only the consumer staples sector being able to do better than those comprising VGK.

AXEAX’s portfolio turnover is quite high. If the fund managers are doing this on purpose, then their strategy hasn’t paid off yet. On the other hand, it may reflect the fact that they’re still searching for securities, which would gel well with their investment strategy. Existing investors could look for other options to invest in the Eurozone.

Let’s move on to the next fund in this review: the Brown Advisory – WMC Strategic European Equity Fund – Investor Shares (BIAHX).

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