Depressed Consumer Spending Hurt the Fidelity Advisor Overseas Fund

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Performance evaluation of the Fidelity Advisor Overseas Fund

The Fidelity Advisor Overseas Fund – Class A (FAOAX) has emerged as a below-average performer in YTD 2016 among the 12 funds chosen for this review. Except for the one-month period, the FAOAX has emerged among the bottom three funds across periods shown in the graph below. Its rank in its peer group has worsened from our last review. We have graphed its performance against two ETFs: the iShares MSCI ACWI ex U.S. ETF (ACWX) and the iShares MSCI EAFE ETF (EFA).

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

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Contribution to returns

Financials are only the fifth-largest sector in FAOAX’s portfolio, occupying a little under 12% of the portfolio. But they have been the biggest negative contributors to the fund’s returns in YTD 2016. The negative contribution hasn’t been dominated by any particular stock but is spread across various stocks like Intesa Sanpaolo (IITSF), Lloyds Banking Group (LYG), Barclays (BCS), and Credit Suisse Group (CS). The almost negligible positive contribution from some stocks has just made matters worse for the sector.

Healthcare stocks have hurt the fund as well. Novo Nordisk (NVO) has led decliners with Bayer (BAYZF) being a prominent negative contributor as well. Small positive contributions from Sartorius and Astellas Pharma (ALPMY) have offset some of the negative contributions.

Tech stocks have been a boon for the fund, as they have reduced a lot of the negative contribution from the two sectors described above. Tencent Holdings (TCEHY) has led positive contributors, which include Nintendo (NTDOY) and Facebook (FB). There are some detractors like 58.com (WUBA) and Hitachi (HTHIY), which have weighed a bit on the sector’s positive contribution.

Investor takeaways

Even a relatively low exposure to financials has hurt FAOAX. And with the consumer discretionary, the sector with the highest weight, not helping the fund’s returns in the year so far, the fund has done quite poorly. If we’re to go by the economic growth projections of the World Bank and the International Monetary Fund, the fund may see some more depressing periods due to tepid consumer spending.

The FAOAX has a relatively low portfolio turnover, which is a good thing. But potential investors need to look at the fund’s performance over business cycles before investing. At this time, the fund doesn’t look like a very appealing option.

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

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