Why Is ELAAX Performing Poorly?

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Sep. 9 2016, Updated 5:04 p.m. ET

Performance evaluation of the Epiphany FFV Latin America Fund

The Epiphany FFV Latin America Fund Class A (ELAAX) has had quite a poor 2016 so far. In fact, as of August 31, 2016, the fund stands dead last year-to-date among the seven funds chosen for this review.

ELAAX finds itself in the same place for all but the one-month period. We’ve graphed its performance against the iShares Latin America 40 ETF (ILF) to give a comparison between it and a passive fund. Let’s look at what’s contributed to the fund’s poor performance in 2016.

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Contribution to returns

Even after posting double-digit returns for the year, ELAAX has finished last in its peer group. Materials, one of the fund’s core sectors, has emerged as the biggest positive contributor to its returns year-to-date. Compañía de Minas Buenaventura (BVN) has contributed the most to the sector’s returns. Sizable contributions have also come from Vale (VALE), CEMEX (CX), and Gerdau (GGB).

Financials are a distant second to materials in terms of positive contributions to ELAAX’s returns. Banco Bradesco (BBD) has led the sector, with Itaú Unibanco Holding (ITUB) and Credicorp (BAP) contributing sizably as well. However, negative contributions from Credito Real and Unifin Financiera have dragged on the sector.

Energy stocks have also fueled gains in the fund. The sector, which has had no negative contributors, has been led by Petrobras (PBR) and Cosan (CZZ). Other stocks included in the fund’s holdings are Ultrapar Participações (UGP) and Ecopetrol (EC).

Meanwhile, the utilities, real estate, and consumer discretionary sectors have hurt the fund. While Empresa Nacional de Electricidad (EOCC) has nullified the positive contributions from Companhia Paranaense de Energia (ELP) in the utilities sector, El Puerto de Liverpool has driven down the discretionary sector.

Investor takeaway

One reason why ELAAX hasn’t done as well as its peers this year is that Mexican stocks form over 40% of its portfolio, making it the most invested geography. Given the rally in Brazilian stocks, the fund has lost out due to its higher exposure to Mexico. However, this can’t be held against it, because it was doing well when political uncertainty gripped Brazil.

The fund’s higher exposure to Mexico is a distinctive feature and could be useful to your LatAm investment portfolio if Brazil’s fortunes turn. However, the subpar performance of the fund’s financials sector remains a worry.

Let’s move on to the Fidelity Advisor Latin America Fund Class A (FLFAX) in the next article.

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