Although mutual funds in general have little or no direct exposure to Greek stocks or bonds, the debt standoff with the European union is causing collateral damage in the form of big selloffs and price drops for certain types of mutual funds.
The mutual funds hit hardest by the Greek debt crisis are those with the greatest exposure to Europe stocks and international bonds.
But stock prices are falling in the U.S. amid fears of contagion, which is the likelihood that the economic problems in one country (Greece) can spread to surrounding countries and beyond.
And a crashing stock market in China only compounds the negative sentiment for equities and certain fixed-income instruments in markets around the globe.
The selloff in Europe stock and global bonds may continue in the short term, but one man’s short-term trash can be another man’s long-term treasure.
Whether you think it’s time to sell, hold, or buy, here are three of the mutual funds hit hard by the Greek debt crisis.
Mutual Funds Hit By Greek Debt Crisis: ProFunds Europe 30 (UEPSX)
YTD Performance: -4.9%
The negative returns of ProFunds Europe 30 (UEPSX) hints of a broader European stock contagion.
As recently as the end of the Q1 2015, UEPSX did not hold any Greek stocks, yet it’s a passively managed fund holding stocks of more than 10 other European countries. And although the year-to-date return of -4.9% isn’t completely terrible, UEPSX has lost 6.5% in just the past month.
Painting a wider picture, two of the top four sectors are energy and financials, which together amount to one-third of the portfolio and are dragging on the fund’s performance.
It also doesn’t help that the expense ratio for UEPSX is high at 1.75%. Still, the fact that the fund tracks an index of European stocks (albeit one that was created by ProFunds advisors) tells the broad story of Greece’s negative impact on the whole of Europe.
Mutual Funds Hit By Greek Debt Crisis: Wells Fargo Advantage International Bond (ESIYX)
YTD Performance: -6.5%
Wells Fargo Advantage International Bond (ESIYX) is another in the world bond category of mutual funds being dragged down by Greece now. But the category was already weak from challenges in other countries, such as Brazil.
With the Greek debt crisis making headlines in mainstream media outlets, investors are shying away from mutual funds that invest abroad, and world bond funds are catching the brunt of the negative sentiment.
The pervading low yields for U.S. Treasury bonds and high-quality corporate bonds have led many investors and money managers to higher-yielding international bonds. But the price risk has reared its ugly head, and bond funds investing outside of the U.S. are seeing declines in price now.
The average world bond fund is down 2.5% year-to-date, whereas U.S. bonds, as measured by the Barclays Aggregate Bond Index, are up 0.4%.
Mutual Funds Hit by Greek Debt Crisis: US Global Investors Global Resources (PSPFX)
A third area that was already weak but dragged further down by the Greek debt crisis is US Global Investors Global Resources (PSPFX).
Natural resources funds focus on commodity-based industries such as energy, chemicals, and minerals, primarily in North America. However the PSPFX portfolio has nearly one-third of its holdings in Greater Europe.
Current weakness in Europe and the slowing of China’s economy have placed tremendous downward pressure on commodity-based industries, and the Greek debt crisis is adding insult to injury for natural resources funds.
PSPFX is the worst-ranking fund in the natural resources category.
Compounding the negativity for natural resources is the weakness abroad, which is sure to keep the U.S. dollar strong compared to other currencies and oil prices headed down.
The one potential bright spot among the three areas discussed in this story is Europe stocks, which may be entering an oversold value status for long-term investors.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm on Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.
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