Did Portfolio Shuffling Help the Fidelity Advisor Europe Fund in 2016?

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Performance evaluation of the Fidelity Advisor Europe Fund

The Fidelity Advisor Europe Fund – Class A (FHJUX) has been an above-average performer in YTD 2016, ranking third in the one-year period ended October 21, 2016. The graph below shows its performance against two ETFs: the Vanguard FTSE Europe ETF (VGK) and the iShares MSCI Eurozone ETF (EZU).

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

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Contribution to returns

FHJUX’s high exposure to financials has been detrimental to its performance in YTD 2016. United Kingdom–based Shawbrook Group and Prudential plc (PUK) led the sector’s decliners, including Credit Suisse Group AG (CS) and Lloyds Banking Group plc (LYG). However, the positive contribution from Vostok New Ventures and Nordea Bank AB was able to somewhat reduce the overall negative contribution.

Along with financials, the fund’s stock picks from the healthcare sector have been damaging to FHJUX. Getinge AB, Bayer AG (BAYZF), and Teva Pharmaceutical Industries (TEVA) are among the decliners from the sector. Meanwhile, Novozymes A/S (NVZMY) has led the materials sector into negative territory.

Industrials have done the most to help reduce the fund’s negative returns due to positive contributions from Valmet Oyj and Rolls Royce Holdings plc (RYCEY). However, Bolloré, Ryanair Holdings plc (RYAAY), and Babcock International Group plc have been able to reduce the positive contribution substantially. Meanwhile, Statoil ASA (STO) has fueled gains in the energy sector.

Investor takeaway

The Fidelity Advisor Europe Fund – Class A (FHJUX) has posted moderate performance in the year so far. Its portfolio turnover is quite high, which is not an intrinsically bad thing if it helps performance. However, the turnover has not helped FHJUX’s performance. These constant sectoral and stock-level shifts do not provide enough confidence in the fund’s stock-picking ability. Existing investors may want to avoid adding positions to their present holdings, and they may want to consider reducing their holdings.

In the next article, we’ll look at the Ivy European Opportunities Fund – Class A (IEOAX).

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