Performance evaluation of the Virtus Greater European Opportunities Fund

The Virtus Greater European Opportunities Fund – Class A (VGEAX) is placed as a below-average performer in YTD 2016. The past six months have been horrific for the fund, as it ranks dead last among the 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 weak performance by the fund in YTD 2016.

Healthcare Has Haunted the Virtus Greater European Opportunities Fund

Contribution to returns

Healthcare has driven down the fund more than any other sector this year so far. Novo Nordisk A/S (NVO) has ailed the sector, with significant negative contributions also coming from Roche Holding AG (RHHBY), Bayer AG (BAYZF), and Grifols SA (GRFS).

Respectively, financials and consumer discretionary are a close second and third in terms of negative contribution for the year. UBS Group AG (UBS) has weighed heavily on financials, with Lloyds Banking Group plc (LYG) hurting the sector as well. Meanwhile, Barratt Developments has led the consumer discretionary sector down. Although Priceline (PCLN) and others have contributed positively, they have not done enough to significantly reduce the overall negative performance.

Although consumer staples has emerged as a sizable positive contributor, the degree of contribution is low given the large portion of the portfolio it commands. British American Tobacco p.l.c. (BTI) has been the largest positive contributor from the sector and has been closely tailed by Philip Morris International (PM). Nestlé S.A. (NSRGF) and L’Oreal SA (LRLCY) are also among the major positive contributors.

The tech sector has been led by SAP SE (SAP), with an important contribution coming from Accenture Plc (ACN). Meanwhile, materials have been led by the ordinary shares and the ADR of Randgold Resources Ltd. (GOLD).

Investor takeaway

VGEAX had done quite well until our previous review in July. However, healthcare and financials have weighed heavily on its performance. We noted in our last review that the positive contribution from consumer staples is not enough. That has also been a factor in the fund’s drop to a below-average performer.

The lack of exposure to energy stocks has also held back returns. It’ll be interesting to see whether the fund manager persists with this portfolio positioning or decides to make changes.

In the final part of this series, we’ll take a look at the overall picture that emerges from this analysis.

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