Performance evaluation of the UltraLatin America ProFund
The UltraLatin America ProFund Class A (UBPIX) rocketed 59.1% in the first four months of 2016, making it the best performer by far among the eight funds in this review. In the past year, it has fallen 37.8%, placing it dead last among its peers.
Meanwhile, from December’s end until May 6, 2016, the fund rose 40.8%. We have graphed its performance against two ETFs: the iShares Latin America 40 ETF (ILF) and the iShares MSCI Emerging Markets Latin America ETF (EEML). Let’s look at what contributed to UBPIX’s superlative performance in the first part of 2016.
Portfolio composition and contribution to returns
As we explained in the previous article, UBPIX is a leveraged fund. Since its leverage multiple is 2, on a daily basis, the fund provides returns that are theoretically two times that of its underlying index, the BNY Mellon Latin America 35 ADR Index.
The sharp fall in UBPIX in 2015 has to be considered in the same manner: twice of the daily movement of the index. Considering ILF to be a benchmark for Latin American equities, UBPIX has returned over two times the benchmark, thus falling in line with the 2x strategy.
Financials were the biggest positive contributors to the fund’s returns in the first four months of 2016. The sponsored preference ADRs (American depository receipts) of Itaú Unibanco Holding (ITUB) and Banco Bradesco (BBD) helped the sector to move ahead. Bancolombia (CIB) and Banco de Chile (BCH) also contributed meaningfully.
The energy sector was the second-largest positive contributor to UBPIX’s returns. All stocks from the sector, including Ecopetrol (EC) and Ultrapar Participações (UGP), contributed positively, but the sector was led by Petrobras (PBR).
The materials sector was led by Vale (VALE) and helped by CEMEX (CX), but Fibria Celulose (FBR) dragged on its returns. Other positive contributors included CPFL Energia (CPL), Companhia de Saneamento Basico do Estado de Sao Paulo (SBS), Grupo Televisa (TV), and Companhia Brasileira de Distribuicao (CBD).
UBPIX was the best performer in the first part of 2016. However, it was by far the worst performer for the one-year period leading up to April 2016. This was reflective of its leverage strategy.
Investors should be extra cautious when investing in UBPIX. If you make money, you’ll make more than from any other fund investing in LatAm stocks, but if you lose money, you will do so faster than with any other fund.
In the last article of this series, we’ll look at the overall picture that emerges from this analysis.