A recent article from The Wall Street Journal describes how a long-time stock picker in charge of his namesake Weitz Value (ticker WVALX) mutual fund increasingly loses the assets under management (AUM) battle to index funds. According to the article:

“Over three years, his Weitz Value mutual fund has outperformed the Standard & Poor’s 500-stock index by an average of about one percentage point a year and beat about 90% of similar stock funds.

Investors aren’t impressed. In that time, they pulled about $400 million more out of the fund than they put in.”

Why would that be — don’t investors want to make more money? The Alpholio™ analysis of the fund shows that investors are not irrational after all. After a full adjustment for risk taken on by the fund, it turns out that in the past eight years it hardly generated any RealAlpha™:

Cumulative RealAlpha™ for WVALX

This is further illustrated by the Alpholio™ statistics for the fund:

WVALX Statistics

The above chart and figures clearly explain why the fund has been losing AUM. While the volatility of the fund’s returns was comparable to that of its S&P 500® benchmark (also see Morningstar figures), the volatility of its reference exchange-traded product (ETP) portfolio was about 1% lower. At the same time, the reference ETP portfolio generated higher returns. In other words, this elaborate stock-picking was all for naught — the manager would have generated much more value for the fund’s shareholders if he just traded a small number of ETPs. Investors are right to vote with their wallets.

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