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:
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:
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.