Energy Exposure Has Worked Wonders for the Europe 30 ProFund

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Performance evaluation of the Europe 30 ProFund

The Europe 30 ProFund – Investor Class (UEPIX) has been the best performer in 2016 so far and is the only fund to have posted gains both in terms of point-to-point and total returns. The fund has been an above-average performer in the one-year period until October 21 in the group of 12 funds chosen for this review. We have graphed its performance against two ETFs: the Vanguard FTSE Europe ETF (VGK) and the iShares MSCI Eurozone ETF (EZU).

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

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Contribution to returns

UEPIX’s high exposure energy stocks has been extremely beneficial in 2016, especially after February 11, when crude oil prices touched a multiyear low. All stock holdings from the sector have contributed positively. These include Royal Dutch Shell plc (RDS.A), Statoil ASA (STO), BP p.l.c. (BP), and Tenaris S.A. (TS).

Materials are a distant but vital second due to their high degree of positive contribution. Both holdings, ArcelorMittal SA (MT) and Rio Tinto plc (RIO) have contributed positively. The consumer staples sector also contributed positively and was led by British American Tobacco p.l.c. (BTI).

The financials sector has been the biggest negative contributor in the year so far. It has been led down by Barclays PLC (BCS), with Lloyds Banking Group plc (LYG) also emerging as a major drag on the returns of the sector. Telecom services have tailed financials and both holdings—Vodafone Group Plc (VOD) and Telefonica S.A. (TEF)—have dragged the sector into negative territory.

Industrials are in the red due to Ryanair Holdings plc (RYAAY). However, Koninklijke Philips N.V. (PHG) has saved the sector from further declines. Healthcare has been a marginally negative contributor due to sizable negative contributions by AstraZeneca PLC (AZN) and Sanofi (SNY), which nullified the positive contribution made by GlaxoSmithKline plc (GSK).

The tech sector has been nearly flat as positive contributions by ARM Holdings plc and ASML Holding NV (ASML) has been neutralized by Telefonaktiebolaget LM Ericsson (ERIC), Nokia (NOK), and Alcatel Lucent SA (ALU).

Investor takeaway

UEPIX has excelled in 2016 due to its unique positioning and investment in ADRs, which helped its performance. Its massive exposure to energy stocks has also been immensely beneficial to the fund.

Before investing, investors should take note that the fund’s holdings are quite concentrated, with only 30 stocks in the portfolio. Further, the rebalancing of the underlying index is performed only once a year. So, if its composition is not favored by market movement, it can have poor performance for an extended time. If the currency movement is unfavorable, its investment in ADRs could be excessively hurtful.

In the next article of this series, we’ll look at the JPMorgan Intrepid European Fund – Class A (VEUAX).

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