Timely Energy Exposure Helped FHJUX in 1Q16

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Performance evaluation of the Fidelity Advisor Europe Fund

The Fidelity Advisor Europe Fund – Class A (FHJUX) fell 1.8% in 1Q16. But it still emerged as an above-average performer among the 12 funds in this review. In the past one year, the fund has fallen 3.0%, still placing it above average in its peer group. Meanwhile, from the end of December 2015 until April 25, 2016, the fund has risen 0.6%. 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 FHJUX’s above-average performance in 1Q16.

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Portfolio composition and contribution to returns

Financials, FHJUX’s biggest invested sector, was the biggest negative contributor to the fund’s returns in 1Q16. Standard Chartered was the biggest driving stock behind this negative contribution. Credit Suisse Group (CS), Prudential (PUK), Lloyds Banking Group (LYG), and Julius Baer Group were other major decliners. LEG Immobilien contributed a sizable chunk to reduce the negative contribution. But without much help, its positive contribution had a limited effect on the sector’s returns.

Healthcare was a distant second to financials in terms of negative contribution. Shire (SHPG) and Getinge were the main negative contributors for the sector. There were small positive contributions from some picks in the sector that reduced the amount of negative contribution.

Industrials contributed substantially to reduce the overall negative returns of the fund. Sandvik and Rolls Royce Holdings (RYCEY) were among the major positive contributors. Had it not been for negative contributions from Babcock International Group and Bolloré, the sector’s positive contribution would have been much higher.

The fund manager’s decision to enter the energy sector in February, when crude oil prices were seeing historic lows, has to be appreciated. Even with a 3% exposure, the sector emerged as the second-biggest positive contributor after industrials. Statoil (STO) singlehandedly led the sector.

Adidas (ADDYY) reduced some negative contribution caused by William Hill from the consumer discretionary sector. But Novozymes (NVZMY) almost singlehandedly pushed materials down.

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Investor takeaways

Although the industrials sector was primarily responsible for reducing the negative contribution from other sectors—namely financials and healthcare—it was stock picks from the energy sector that helped FHJUX have an above-average performance in 1Q16.

FHJUX did better than the passively managed VGK in 1Q16. Its stock selection from the energy, industrials, and information technology sectors did markedly better than their peers in VGK.

Existing investors should watch how FHJUX performs in the first half of 2016. The fund manager has changed the portfolio recently, and it’s yet to be seen whether his stock calls will work or not. One aspect that’s important to mention is the high rate of portfolio turnover. Although the fund was above average, it still hasn’t proved if it can be among the top funds in its peer group with the high turnover.

In the next part of the series, we’ll look at the Ivy European Opportunities Fund – Class A (IEOAX).

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