Materials and Energy Helped the Vanguard European Stock Index Fund

Performance evaluation of the Vanguard European Stock Index Fund

The Vanguard European Stock Index Fund – Investor Shares (VEURX) figures among the top three funds so far this year. In the period shown in the graph below, the fund has been an above-average performer. 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 the fund’s positive performance in YTD 2016.

Materials and Energy Helped the Vanguard European Stock Index Fund

Contribution to returns

Unlike most of the funds in this review, VEURX is not actively managed. Its sectoral performance can give you an idea of the performance of the European stock market in general and its underlying benchmark, the FTSE Developed Europe All Cap Index, in particular. Hence, this can serve as a broad benchmark to all other funds’ performance. Thus, if another fund’s sector has done better or worse than the VEURX, then the fund managers’ stock picks from that sector have been good or poor compared to the fund.

The financials sector has been the biggest negative contributors to VEURX in YTD 2016. Lloyds Banking Group plc (LYG) has been the biggest negative contributor, although it is far from being alone. Barclays PLC (BCS), Credit Suisse Group AG (CS), and Deutsche Bank AG (DB) are just a few of the names that have negatively contributed to the sector.

Healthcare has been led down by Novo Nordisk A/S (NVO) with Bayer AG (BAYZF) and Novartis AG (NVS) also hurting the sector. Meanwhile, the consumer discretionary sector has been led down by Daimler AG (DDAIF).

However, Adidas AG (ADDYY) has decreased some of the negative contributions from the sector. The telecom services sector was led down by BT Group plc (BT), with Telecom Italia SpA (TI), Telefonica S.A. (TEF), and Vodafone Group Plc (VOD) also among the companies that contributed negatively.

Materials and energy have been the biggest positive contributors for VEURX in the year so far. Glencore Plc (GLNCY) had helped materials along with BASF SE (BASFY) while Royal Dutch Shell plc (RDS.A) (RDS.B) and BP plc (BP) have fueled the rise in the energy sector. Meanwhile, industrials contributed positively due to stocks like Siemens Aktiengesellschaft (SIEGY) and ABB Ltd. (ABB).

Investor takeaway

Because VEURX is passively managed, we can’t analyze its sector and stock level performance as compared to other active funds. We can say that the fund is popular due to the large number of European securities it is invested in.

Its large asset size reflects the fact that many investors have taken the index mutual fund route to invest in European equities. If you just want exposure to European stocks without having to worry about the issues related to active management, this fund can be a potential investment.

Let’s move on to the last Europe-focused mutual fund under review in this series: the Virtus Greater European Opportunities Fund – Class A (VGEAX).