Today’s mutual fund profile in Barron’s features the Neuberger Berman Multi-Cap Opportunities Fund (NMUAX; Class A shares). This $2.2 billion fund has a hefty front load of 5.75% along with a more reasonable expense ratio of 1.18%. It sports a low 11% turnover ratio charged for the management of a fairly concentrated portfolio of 30 to 40 stocks, of which top-ten holdings currently constitute 33%. Morningstar® classifies this fund as Large Blend, although it invests “across styles and capitalizations.”
According to the article
“The market offers an objective measurement of performance,” he says. “You get a very crisp answer.” That answer for investors in Multi-Cap Opportunities, which Nackenson has run since December 2009, has been an average annual return of 17.6% over the past three years, better than 97% of all large-blend funds. In 2013, the fund was up 43%, at the very top of its category and with very little index overlap.
Let’s analyze the fund’s performance from the Alpholio™ perspective. (Please note that this analysis does not take into account the substantial sales charge of the fund, which would significantly degrade the results.) Here is the cumulative RealAlpha™ chart for the fund, spanning the last four years under the current manager:
The fund’s cumulative RealAlpha™ has been flat to negative from early 2010 through 2012. While it strongly rebounded in 2013, the trend in the most recent couple of months has been negative. Compared to a reference portfolio of ETFs, the fund generated a modest amount (fraction of a percentage point) of annualized RealAlpha™ at a similar level of volatility.
The following chart shows the ETF weights in the reference portfolio over the same analysis period:
The fund’s top equivalent positions were in the iShares Russell 1000 Growth ETF (IWF; average weight of 28.3%), Vanguard Consumer Staples ETF (VDC; 15.6%), iShares S&P Mid-Cap 400 Value ETF (IJJ; 12.6%), Vanguard Industrials ETF (VIS; 10.1%), Vanguard Energy ETF (VDE; 8.5%), and Vanguard Financials ETF (VFH; 7.4%). The Other component of the chart includes six additional ETFs with smaller average weights.
The final chart provides a hypothetical buy-sell signal for the fund, derived from the smoothed cumulative RealAlpha™:
As can be seen, by following this signal a prospective investor would largely avoid the long period of underperformance and timely capitalize on the recent period of outperformance of the fund.
In sum, the overall performance of Neuberger Berman Multi-Cap Opportunities in the last four years has been unimpressive on a truly risk-adjusted basis. Although the fund produced good results last year, there are early indications that this outperformance may not continue in the near future.
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