Telecom Stocks Continue to Haunt the Putnam Europe Equity Fund

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Jul. 27 2016, Published 7:33 p.m. ET

Performance evaluation of the Putnam Europe Equity Fund

The Putnam Europe Equity Fund Class A (PEUGX) has fallen 6.5% YTD (year-to-date). Being this deep in the red has resulted in the fund’s emerging as a below-average performer in the group of 12 funds chosen for this review.

Across the periods plotted in the graph above, PEUGX has been a below-average performer. In fact, for the last year, it’s been dead last in its peer group. 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 below average performance by the fund YTD.

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Contribution to returns

Financials have troubled PEUGX the most in 2016 so far. Credit Suisse Group (CS), Prudential (PUK), and Virgin Money Holdings have hammered the returns from the sector. Société Générale Group and ING Groep (ING) have also been sizable negative contributors. Though Nexity, Partners Group Holding, and a few others have contributed positively, their contributions haven’t had much impact.

Consumer discretionary is a distant second to financials in terms of negative contributions to returns. Persimmon has dragged the most on the sector, but it’s not alone. Fiat Chrysler Automobiles (FCAU), Luxottica Group (LUX), and Sports Direct International have played important roles in the negative contributions from the sector. Though Compass Group and Amazon (AMZN) have contributed positively, their contributions haven’t been enough to sizably reduce the overall negative contributions from the sector.

Telecommunications services has been a surprise in terms of the amount of its negative contributions. Telecom Italia (TI) and SFR Group have weighed on the sector.

Energy and consumer staples, in that order, have done the most to reduce the negative showing by the fund. Royal Dutch Shell (RDS.A) and Total (TOT) have powered the energy sector, while Unilever (UN) has pushed consumer staples to positive territory.

Investor takeaway

PEUGX has been weak in terms of performance in 2016. It was even weaker in the one-year period leading up to July 15, 2016. It has underperformed not only the passively managed SPDR EURO STOXX 50 ETF (FEZ), but also many of its actively managed peers. Its portfolio turnover is quite high and hasn’t translated into performance. Existing investors may want to consider other funds for investment in Europe.

Let’s move on to the next fund in this series, the T. Rowe Price European Stock ETF (PRESX).

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