A Dismal YTD 2016 for the Fidelity Advisor Overseas Fund

Performance evaluation of the Fidelity Advisor Overseas Fund

The Fidelity Advisor Overseas Fund – Class A (FAOAX) has emerged as a below-average performer among the 12 funds in this review. Across the periods shown in the graph below, the fund is placed either seventh or eighth.

We have graphed its performance against two ETFs: the iShares MSCI ACWI Ex-US ETF (ACWX) and the Vanguard FTSE All-World Ex-US ETF (VEU). Let’s look at what has contributed to FAOAX’s below-average performance so far in 2016.

A Dismal YTD 2016 for the Fidelity Advisor Overseas Fund

Portfolio composition and contribution to returns

Although financials are not the most-invested sector in FAOAX, this sector has contributed the most to the fund’s below-average performance in YTD 2016. The negative contribution is not dominated by any particular stock, but is spread across the stocks. Intesa Sanpaolo (IITSF), Mitsubishi UFJ Financial Group (MTU), and Credit Suisse Group (CS) have contributed negatively in moderate amounts. The overall positive contribution is negligible.

As the most-invested sector by the fund, the consumer discretionary sector is second to financials in terms of negative contribution to returns. Japan’s Next Co. has contributed the lion’s share to the sector’s overall performance. Meanwhile, Bayer (BAYZF), Novo Nordisk A/S (NVO), and Shire (SHPG) led the healthcare sector down.

Consumer staples have been surprising negative contributors, led down primarily by Sprouts Farmers Market (SFM). The tech sector has been weighed down by 58.com (WUBA).

Investor takeaway

The Fidelity Advisor Overseas Fund – Class A (FAOAX) is positioned for a consumption-driven upturn, and it has preferred tech stocks over financials.

Given that consumption has been subdued in most developed economies, except the US, it is not surprising that the fund has not done well so far in 2016. If we’re to go by the economic growth projections of the World Bank, the fund may see some more depressing periods.

The FAOAX has sharply underperformed the passively managed ACWX so far. Although it has done better than ACWX in the one-year period ended June 17, 2016, the performance is only marginally better. It will be interesting to see whether the fund continues to remain depressed for an extended period.

Let’s now move on to the Franklin International Growth Fund – Class A (FNGAX).