European Stocks and Mutual Funds: Don't Go Overboard

(Continued from Prior Part)

The Brown Advisory – WMC Strategic European Equity Fund

We’ll be analyzing the Brown Advisory – WMC Strategic European Equity Fund – Investor Shares (BIAHX) in this article. The Brown Advisory – WMC Strategic European Equity Fund (all asset classes) was managing assets worth $1.1 billion as of January 2016. As of December 2015, its assets were spread across 65 holdings and included stocks of British American Tobacco (BTI), Smith & Nephew (SNN), Heineken (HEINY), Prudential (PUK), and L’Oréal (LRLCY), which comprise 14.9% of the fund’s portfolio.

Performance

From a purely NAV (net asset value) return standpoint, the BIAHX had a great one-year period ended February 16, 2016, and a great year in 2015. It was second for both periods among the group of 12 funds chosen for this review. For a returns comparison, we’ve chosen two ETFs: the ALPS STOXX Europe 600 ETF (STXX) and the SPDR EURO STOXX 50 ETF (FEZ).

Other metrics

The BIAHX’s standard deviation, or the volatility of returns, in the one-year period ended February 16 was 17.2%. This is lower than both the STOXX Europe 600 Index’s 18.7% and the peer group’s average of 18.0%.

The fund’s risk-adjusted returns, calculated by the Sharpe ratio, were -0.23, compared with the STOXX Europe 600’s -0.69 for the one-year period ended February 16. Rather than evaluating a negative Sharpe ratio, let’s look at its ratio for 2015. It stood at 0.56 against the index’s 0.02, indicating a great performance. The fund had the second-best ratio for the year and it missed the top spot by a whisker.

The information ratio, calculated with the STOXX Europe 600 Index as the benchmark, was 2.3 for the one-year period ended February 16, ranking the fund second among all the funds in this review. The information ratio measures the fund manager’s consistency and ability to generate excess returns over a benchmark. The higher the reading, the better the consistency. Investors should remember that we can’t evaluate a negative information ratio.

A note to investors

The BIAHX’s superior performance was not depicted by just the Sharpe and information ratios, but alpha as well. The fund’s alpha for the one-year period ended February 16 placed it second among the 12 funds in this review. For 2015, its alpha was the best among its peers. Given its low volatility and superior quantitative metrics, the fund could be a candidate for your shortlist of funds which invest in Europe. Since the fund was launched only in October 2013, there’s not much long-term performance to analyze. Interested investors can look at other metrics, such as the portfolio turnover and expense ratio, to see whether the fund suits their needs. In the next article, we’ll look at the Fidelity Advisor Europe Fund – Class A (FHJUX).