Industrials and Discretionary Helped AEDAX in 1Q16

David Ashworth - Author

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

Performance evaluation of the Invesco European Growth Fund

The Invesco European Growth Fund – Class A (AEDAX) fell 0.9% in 1Q16. But it still ranked second-best among the 12 funds in this review. In the past one year, the fund rose 0.6%, again the second-highest among its peers. Meanwhile, from the end of December 2015 until April 25, 2016, AEDAX rose 0.8%. In the graph below, you can see its performance against two other ETFs: the Vanguard FTSE Europe ETF (VGK) and the iShares MSCI Eurozone ETF (EZU).

Now let’s look at what contributed to AEDAX’s superior performance in 1Q16.

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Portfolio composition and contribution to returns

The healthcare sector was the biggest negative contributor to AEDAX’s returns in 1Q16. German biotech company MorphoSys was the biggest negative contributor among AEDAX’s holdings from the sector. Other major negative contributors included Roche Holding (RHHBY) and Smith & Nephew (SNN). There was no help from any stock from the sector that could have reduced the negative contribution.

Financials, the joint highest invested sector, was close on the heels of healthcare in terms of negative contribution. UBS Group (UBS) led negative contributors, which included Lloyds Banking Group (LYG). Although Turkish conglomerate Hacı Ömer Sabancı Holding and the preference shares of Sberbank of Russia helped reduce the drag quite substantially, the sector still emerged as a sizable negative contributor.

Industrials did a lot to reduce AEDAX’s negative returns in 1Q16. Irish group DCC was the biggest positive contributor from the sector in the period. French industrial group Bolloré and Britain’s Ultra Electronics Holdings dragged on the sector’s contribution, but positive contributors helped the sector post gains.

While one of the joint biggest sectoral holdings was the second-biggest negative contributor, the other was the second-biggest positive contributor. Consumer discretionary was led by a positive contribution from Kuoni Reisen Holding, which almost singlehandedly powered the sector ahead. There were small contributions from Publicis Groupe (PUBGY) and RELX (RELX) as well. A substantial drag from Sky, William Hill, and Next held back the sector’s performance.

Materials were led by Syngenta (SYT), with Israel Chemicals (ICL) contributing positively as well.

Investor takeaways

AEDAX did better than VGK in 1Q16 due to its stock picks from consumer discretionary, financials, and industrials doing better than those of passive VGK. Although AEDAX declined in 1Q16, it was the least decliner for the period. Coupled with low portfolio turnover, it shows fund managers’ ability to choose the right stocks and believe in them enough not to turn them over quickly.

Existing investors may decide to stay with AEDAX. Those looking to invest in Europe through active funds might consider AEDAX as a possible contender for their money.

Let’s move on to the second fund in this review, the Columbia European Equity Fund – Class A (AXEAX).


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