How Geographic Restriction Has Hurt VPACX in 2016



Performance evaluation of the Vanguard Pacific Stock Index Fund

The Vanguard Pacific Stock Index Fund – Investor Shares (VPACX) has been a below-average performer for all the periods shown in the graph below. In the YTD (year-to-date) period, the fund ranked seventh among eight funds in this review. We have graphed its performance against two combinations of ETFs: the Vanguard FTSE Pacific ETF (VPL) with the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares Core MSCI Pacific ETF (IPAC) with the iShares MSCI Emerging Markets ETF (EEM).

Let’s look at what has contributed to this poor performance by the fund in YTD 2016.

Article continues below advertisement

Portfolio composition and contribution to returns

Almost all holdings from the financial sector have contributed negatively to the VPACX so far in 2016. Mitsubishi UFJ Financial (MTU) towers above all other negative contributors from the sector. Other notable detractors include Mizuho Financial Group (MFG), Sumitomo Mitsui Financial Group (SMFG), and Nomura Holdings (NMR).

Consumer discretionary has had a similar fate. Virtually none of the stocks have helped in reducing the negative contribution from other stocks from the sector. Honda Motor (HMC) is another major negative contributor. While Fanuc (FANUY) has weighed on industrials, Hitachi (HTHIY) has led the tech sector down.

Telecom services have helped reduce losses for the fund. NTT DOCOMO (DCM) has led positive contributors from the sector, which include KDDI and SoftBank Group (SFTBY), among others.

Investor takeaways

Since the VPACX is passively managed, we can’t comment on stock selection. However, what we can say is that exposure only to developed markets has hurt the fund. In 2016 YTD, it has far underperformed both combinations of ETFs that were outlined earlier in the article. However, for those investors who are wary or uncomfortable about investing in emerging markets, the VPACX is the only choice for investing in the Asia-Pacific region via the mutual fund route. This is reflected in the asset size of the fund, as it is the largest among the eight funds in this review.

Let’s now move on to the Wells Fargo Asia Pacific Fund – Class A (WFAAX).


More From Market Realist