How Portfolio Shifts Are Affecting Fidelity’s Europe Fund

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Performance evaluation of the Fidelity Advisor Europe Fund

The Fidelity Advisor Europe Fund Class A (FHJUX) has fallen 5% YTD (year-to-date). However, it’s still an average performer in the group of 12 funds chosen for this review.

The three months leading up to June 15, 2016, have been bad for the fund, but in other periods, it has been an above-average performer. We’ve graphed its performance against the Vanguard FTSE Europe ETF (VGK) and the iShares MSCI Eurozone ETF (EZU).

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

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Contribution to returns

The fund’s high exposure to financials has been detrimental to its performance YTD. UK-based Shawbrook Group has led the detractors from the sector, which include Prudential (PUK), Credit Suisse Group (CS), and Lloyds Banking Group (LYG). Positive contributions from German property company LEG Immobilien were able to reduce the overall negative contribution in the sector a bit.

Along with financials, the fund’s stock picks from the healthcare sector have been quite harmful. Getinge, BAYER (BAYZF), and Teva Pharmaceutical (TEVA) have led the sector down.

Consumer discretionary, the second biggest sectoral holding of FHJUX, has also contributed negatively to the fund, but Adidas (ADDYY) has reduced a sizable chunk of the negative contributions made by companies including William Hill. Meanwhile, Novozymes (NVZMY) has almost single-handedly led the materials sector down.

Energy sector stocks have been instrumental in reducing drag from the above-mentioned sectors. Statoil (STO) has powered the energy sector. Though industrials have been positive contributors overall due to stocks such as Valmet Oyj and Rolls Royce Holdings (RYCEY), Babcock International Group and Bolloré have reduced these positive contributions substantially.

Investor takeaway

FHJUX has performed marginally better than the passively managed SPDR EURO STOXX 50 ETF (FEZ). Its frequent portfolio changes haven’t been delivering the expected performance. It’ll be interesting to see if the fund’s management settles down with its portfolio.

Existing investors may want to avoid adding positions in FHJUX to their present holdings and wait to see if the fund’s fortunes turn. New investors should evaluate whether the fund’s positioning and strategy suit their needs.

In the next article, we’ll look at the Ivy European Opportunities Fund Class A (IEOAX).

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