Which Sector Provided the Most Support to UEPIX in 1Q16?

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Performance evaluation of the Europe 30 ProFund

The Europe 30 ProFund – Investor Class (UEPIX) fell 1.5% in 1Q16, ranking it fourth among the 12 funds in this review. In the past one year, the fund has fallen 10.5%, placing it second to last among the 12 funds. Meanwhile, from the end of December 2015 until April 25, 2016, the fund rose 3.3%. 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 UEPIX’s above-average performance in 1Q16.

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Portfolio composition and contribution to returns

Financials is UEPIX’s third-largest invested sector and one of its core sectors. It emerged as the biggest negative contributor to returns in 1Q16. Barclays (BCS) and HSBC Holdings (HSBC) hurt the sector equally and were primarily responsible for dragging its returns down. Other holdings such as Banco Santander (SAN) also contributed negatively.

Healthcare stocks emerged as a distant second to financials in terms of negative contribution. AstraZeneca (AZN) contributed the most to the negative returns, followed by Sanofi (SNY).

The high exposure to energy stocks, the largest invested sector, was instrumental in reducing the drag on UEPIX created by financials. Royal Dutch Shell (RDS.A) and Statoil (STO) led the sector’s positive contributors. Tenaris (TS) and Total SA (TOT) also helped the sector.

Materials and consumer staples also did quite a bit to reduce the drag from negative contributors. The materials sector was led by ArcelorMittal (MT), while consumer staples was helped by British American Tobacco (BTI) and Unilever (UN).

Investor takeaways

UEPIX is uniquely positioned, which is what helped the fund in 1Q16. The high energy exposure helped after crude oil prices started rising on February 11, 2016. However, its composition in the financial sector created a drag that couldn’t be overcome by positive contributing sectors.

It’s important for investors to note that UEPIX’s holdings are quite concentrated with only 30 stocks in the portfolio. The rebalancing of the underlying index is done only once a year. So if its composition isn’t favored by Market movement, it can have poor performance for a long period of time.

The fund invests in ADRs (American depositary receipts), which means the impact of currency movement is built into its structure. It also means investors typically exercise caution when investing in the fund. UEPIX isn’t a core holding of European equities exposure, but it can be an avenue for more adventurous investors.

In the next part of this series, we’ll look at the JPMorgan Intrepid European Fund – Class A (VEUAX).

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