A recent post on Barron’s reports on statements made by Bill Nygren at the Morningstar Investment Conference. Mr. Nygren, manager of Oakmark Fund (ticker OAKMX), claims that it is easier to be a value manager today than it was 20 to 30 years ago because:
- The analysts his firm hires now are “definitely” smarter than those it was hiring when he started out
- His firm’s investment horizon for a security is five to seven years, as opposed to, say, only a couple of quarters for other investors.
So, let’s see how this is reflected in the historical performance of the above fund. First, as indicated in the most recent SEC filing, the annual turnover rate of the fund was 27% during the most recent fiscal year (18% and 24% in the two prior years, respectively). For simplicity, let’s assume an average turnover rate of approximately 23% and that a different part of the portfolio is replaced each year. Then it would take a little over four years to replace all holdings. This implies that an average security persists for only about two years in the portfolio. Even if this is not entirely accurate due to simplifying assumptions, that period is a far cry from the much longer investment horizon mentioned above. So much for the buy-and-hold philosophy.
Second, the Alpholio™ analysis of the fund shows that in the past eight years, it practically generated no alpha for its shareholders, when fully adjusted for the ever-changing risk of its positions:
In other words, instead of investing in carefully-analyzed individual stocks, the fund would do a comparable job investing in a reference portfolio of exchange-traded products (ETPs). In addition, this reference portfolio would have a smaller volatility of returns. (Alpholio™ calculates such reference portfolios for all US mutual funds on an ongoing basis.)
Therefore, while it may be true that today’s analysts are smarter than those hired in the past, it is definitely not any easier to be a value investor with a self-proclaimed long-term horizon.