A recent article from Morningstar compares two sibling funds, Yacktman Focused (YAFFX) and Yacktman (YACKX). The thesis of the article is that:

“… the former’s unnecessarily high expenses dim its appeal relative to its cheaper sibling.”

The article goes on to say that:

“Since its 1997 inception, Focused has an R-squared, a measure of correlation, of 95.2 relative to Yacktman. Granted, Focused’s gross return since its 1997 inception edges Yacktman’s, an encouraging sign that management’s greater conviction has led to better results. But any incremental outperformance gross of fees has been more than absorbed by the fund’s higher expenses. Focused’s 9.65% annualized return net of fees during that same stretch trails Yacktman’s 9.87%. Based on how they’re investing their own money, though, the management team of Don Yacktman, Stephen Yacktman, and Jason Subotky believes Focused will ultimately trump Yacktman. None of them invests a dime in the Yacktman fund, but all three maintain positions of more than $1 million in Focused.

…and, rightly so! Here are the Alpholio™ statistics for both funds from February 2005 through March 2013:

YAFFX Statistics

YACKX Statistics

This analysis takes into account only the after-fee returns of both funds and their respective reference portfolios. Clearly, YAFFX performance on a truly risk-adjusted basis has been superior to that of YACKX: The discounted cumulative RealAlpha™ figures speak for themselves. In addition, the volatility of YAFFX was only slightly higher than that of YACKX. The managers are right by voting with their own money in favor of the former fund.

This is further corroborated by the trailing Sharpe Ratios for both funds calculated by… Morningstar itself:

Fund Ticker 3-Year 5-Year 10-Year 15-Year
Yacktman Focused YAFFX 1.08 0.74 0.69 0.42
Yacktman YACKX 1.05 0.72 0.69 0.46

In the 3-, 5- and 10-year periods to present, the Sharpe Ratio of YAFFX was greater or equal to that of YACKX. The latter fund had a higher Sharpe Ratio only in the 15-year period, which indicates that any advantage of risk-adjusted performance it had over the former fund was confined to the 5-year period that ended 10 years ago. So much for a superficial observation that YACKX had a higher net return than YAFFX since the 1997 inception. Yacktman Focused’s markup is not “needless,” it is actually warranted by its risk-adjusted performance in the last 10 years, even if such an adjustment is made with a relatively crude measure of the Sharpe Ratio.

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