Analysis of Glenmede Large Cap Core Fund
analysis, mutual fund

Today’s piece in Barron’s profiles the Glenmede Large Cap Core Fund (GTLOX) and the Glenmede Large Cap Growth Fund (GTLLX). This post will focus on the former fund. This $1.6 billion no-load fund sports a relatively low 0.87% expense ratio and has a 73% turnover. According to the article

The Large Cap Core fund has edged out the Standard & Poor’s 500 in eight of the past 10 calendar years; its returns nearly matched the index’s in the other years. Its average annual return of 8.8% over the past decade beats 96% of its large-blend peers.

However, the prospectus benchmark for the fund is not the S&P 500® Index but the Russell 1000® Index. One of the accessible implementations of the latter is the iShares Russell 1000 ETF (IWB). Alpholio™’s calculations show that since inception the fund returned more than the ETF in about 80% of all rolling 36-month periods, 79% of 24-month periods and 71% of 12-month periods.

A single index does not fully account for the fund’s risk. In one variant of Alpholio™’s patented methodology, the fund’s performance is compared to that of a dynamic reference ETF portfolio with fixed membership and variable weights. Here is a chart of the resulting cumulative RealAlpha™ for Glenmede Large Cap Core:

Cumulative RealAlpha™ for Glenmede Large Cap Core Fund (GTLOX)

The fund did not generate any appreciable RealAlpha™ from late 2004 through the third quarter of 2012. The fund added almost all of the value in a relatively short period from the fourth quarter of 2012 through the end of 2014. Given this delay, the overall regular and lag annualized discounted RealAlpha™ measures for the fund were only around 0.7% (to learn more about RealAlpha™, please visit our FAQ). At 15.8%, the fund’s standard deviation was slightly higher than that of the reference ETF portfolio. The fund’s RealBeta™ was approximately 1.05. (An analysis of the fund using a reference ETF portfolio with both fixed membership and weights produced similar results.)

The following chart shows changes of ETF weights in the reference portfolio for the fund over the same evaluation period:

Reference Weights for Glenmede Large Cap Core Fund (GTLOX)

The fund had top equivalent positions in the iShares S&P 500 Growth ETF (IVW; average weight of 26.3%), PowerShares Dynamic Market Portfolio (PWC; 17.7%), iShares Morningstar Mid-Cap ETF (JKG; 16.2%), Vanguard Financials ETF (VFH; 10.0%), iShares Morningstar Mid-Cap Growth ETF (JKH; 6.2%), and Vanguard Energy ETF (VDE; 5.9%). The Other component in the chart collectively represents additional six equity ETFs with smaller average weights.

The above findings illustrate how a fund’s annualized three-, five- and ten-year returns (and the corresponding ratings) can be heavily influenced by a short burst of recent outperformance. For most of the Glenmede Large Cap Core fund’s existence, investors realized little benefit on truly risk-adjusted basis. Only time will tell if the fund continues to add value in the future; so far in 2015, the cumulative RealAlpha™ curve is rather flat.

Despite having a substantial turnover, historically the fund managed to limit its capital gain and dividend distributions, which may make it suitable even for taxable accounts. The lack of a front sales charge and a comparably low expense ratio certainly enhance the fund’s appeal.

To learn more about the Glenmede Large Cap Core and other mutual funds, please register on our website.


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Analysis of Columbia Seligman Communications and Information Fund
analysis, mutual fund

A recent profile in Barron’s features the Columbia Seligman Communications and Information Fund (SLMCX, Class A shares). This $3.7 billion fund has a maximum 5.75% sales charge, 1.36% expense ratio and 61% turnover. According to the article

Over 10 years, the fund has returned 10.7%, beating 87% of its science-and-technology fund peers, according to Morningstar, and the broader market’s 7%. Its one-year performance is also impressive, returning 8.7% annually and beating 83% of its peers, but the fund’s performance can be very volatile over short periods.

The prospectus benchmark for the fund is the S&P North American Technology Sector Index. One of the long-lived and accessible implementations of this index is the iShares North American Tech ETF (IGM). Alpholio™’s calculations show that over the 10 years through August 2015, the fund returned more than the ETF in about 49% of all rolling 36-month periods, 55% of 24-month periods and 56% of 12-month periods. Over the last five years, these figures were 8%, 24% and 33%, respectively. This indicates that the more recent performance of the fund was likely not as good as the longer-term one.

Let’s take a closer look at the performance of Columbia Seligman Communications and Information by applying a variant of Alpholio™’s patented methodology. To more accurately adjust for the fund’s holdings and risk over time, the methodology constructs a reference ETF portfolio with fixed membership but variable weights. Here is a chart of the resulting cumulative RealAlpha™ for the fund:

Cumulative RealAlpha™ for Columbia Seligman Communications and Information Fund (SLMCX)

Over the last five years, the fund produced a negative 1.8% of the regular and negative 1.2% of the lag annualized discounted cumulative RealAlpha™ (to learn more about RealAlpha™, please visit our FAQ). At 15.2%, the fund’s standard deviation was approximately 1.3% higher than that of the reference ETF portfolio. The fund’s RealBeta™ of over 1.23 underscores the fund’s volatility.

The following chart illustrates changes of ETF weights in the reference portfolio for the fund over the same analysis period:

Reference Weights for Columbia Seligman Communications and Information Fund (SLMCX)

The fund had top equivalent positions in the Vanguard Information Technology ETF (VGT; average weight of 53.8%), iShares North American Tech-Software ETF (IGV; 15.1%), iShares North American Tech-Multimedia Networking ETF (IGN; 13.1%), iShares S&P Mid-Cap 400 Value ETF (IJJ; 7.5%), iShares Morningstar Small-Cap ETF (JKJ; 4.3%), and iShares Nasdaq Biotechnology ETF (IBB; 3.2%). The Other component in the chart collectively represents two additional ETFs with smaller average weights.

Over the last five years, the Columbia Seligman Communications and Information Fund delivered an unimpressive performance on a truly risk-adjusted basis. The fund could have been substituted, with better return/risk characteristics, by a portfolio of a small number of the technology sector and small/mid-cap ETFs. In addition, the fund returned a few percentage points less per year than its stated benchmark, especially after accounting for its high front load. Finally, the fund’s periodic substantial long- and short-term capital gain distributions (e.g. collectively almost 13% of the NAV in 2014) made it less suitable for taxable accounts.

To learn more about the Columbia Seligman Communications and Information and other mutual funds, please register on our website.


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