Europe-focused mutual funds

In this series, we’ve reviewed 12 Europe-focused mutual funds in terms of their sectoral changes over the past year. We’ve also looked at the reasons for their performances in 1Q16. We looked at the sector and stock picks for each fund and pointed out which picks worked and which ones didn’t. We also compared the performances of these funds with two ETFs: the Vanguard FTSE Europe ETF (VGK) and the iShares MSCI Eurozone ETF (EZU).

Passive or Active Investor in Europe-Focused Mutual Funds?

Portfolio positioning

In our reviews, we saw that most of these funds favored financials as their top sectoral choice. Although stocks from the sector are still the largest holdings for five of these funds, exposure to the sector by no means is as large or as widespread as it was. There are several funds that have started leaning toward industrials (BIAHX) (IEOAX) (VEUAX). In Part 24 of the series, we also saw that the Virtus Greater European Opportunities Fund – Class A (VGEAX) is leaning toward consumer staples stocks.

We assessed two passive mutual funds in this review. The Europe 30 ProFund – Investor Class (UEPIX) is benchmarked to an index created by the fund in-house. The Vanguard European Stock Index Fund – Investor Shares (VEURX) is representative of the European stock market across market caps.

Observations

Drawing from what we covered in the first part of this series, the ECB (European Central Bank) fired its biggest shot in terms of recent stimulus measures in March. There’s disagreement in Europe regarding the impact of those measures. One thing is for certain, though. Monetary stimulus alone can’t keep powering equities ahead.

Then there’s concern about a possible Brexit—Britain exiting the European Union. Some think Europe can’t get through a year without at least one member being on the verge of exiting the European Union. Earlier, it was a Grexit when Greece was very close to having its membership annulled. Now Britain is threatening to leave. It feels that trade rules don’t favor the nation and are holding it back.

If a Brexit does occur, it would most likely have a cascading effect on other European Union members. They may want the European Union to come to the table to negotiate aspects that member nations don’t find favorable for them. That could threaten the entire structure of the European Union.

For now, chances of a Brexit are low. But it still points to one thing. European markets (FEZ) (IEV) have one more thing to worry about until at least the middle of this year. This will keep European stocks volatile, forcing investors to hang on tightly until the end of this bumpy ride. You’ll have to decide if you’ll be going along for the ride or if you’ll take another path—either passive or active—to invest in the region.

You might be interested in reading a similar analysis on US equity mutual funds. For more analysis on mutual funds, you can also visit Market Realist’s Mutual Funds page.

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