A recent profile in Barron’s features the Aquila Three Peaks Opportunity Growth Fund (ATGAX; Class A shares). This $448 million multi-cap fund has a 4.25% maximum front-end sales charge, 1.55% net expense ratio and 43% turnover. According to the article
The [fund], which focuses on about 70 midsize stocks, has averaged a 20% return over the past three years, beating 97% of its mid-cap peers.
It should be noted that that fund may invest not only in equities
Up to 30% of assets may be invested in fixed income securities including lower-quality, high-yield corporate debt.
The current manager of the fund took over the helm in October 2010. Therefore, the following analyses will span only the five years through October 2015.
The primary benchmark for the fund is the Russell 3000® Index. One of the accessible implementations of this index is the iShares Russell 3000 ETF (IWV). Alpholio™’s calculations show that the fund returned more than this ETF in 100% of all rolling 36-month and 24-month periods, as well as 78% of 12-month periods.
The secondary benchmark is the S&P 500® Index. One of the lowest-cost implementations of this index is the Vanguard S&P 500 ETF (VOO). According to Alpholio™’s calculations, the fund beat that ETF in 100% of all rolling 36-month periods, 97% of 24-month periods, and 78% of 12-month periods.
While the above comparisons focus on relative returns in typical holding periods, they do not adjust for the fund’s risk. To gain more insight into the fund’s performance, let’s employ a variant of Alpholio™’s patented methodology. In this approach, a dynamic reference portfolio of ETFs that closely mimics the fund is constructed. The portfolio has a fixed membership but allows for ETF weights to change over time. Here is the resulting chart of the cumulative RealAlpha™ for Aquila Three Peaks Opportunity Growth:
The fund generated over 5% of annualized discounted RealAlpha™ (to learn more about this measure, please visit our FAQ). However, most of the positive RealAlpha™ was produced only since mid-2012. At 13%, the fund’s standard deviation was approximately 0.2% lower than that of the reference ETF portfolio. The fund’s RealBeta™ was around 1.05.
The following chart illustrates changes of ETF weights in the reference portfolio over the same analysis period:
The fund had top equivalent equity positions in the Vanguard Mid-Cap ETF (VO; average weight of 45.1%), Vanguard Small-Cap Growth ETF (VBK; 23.3%), Vanguard Consumer Discretionary ETF (VCR; 10.4%), PowerShares Dynamic Market Portfolio (PWC; 5.6%), and Vanguard Consumer Staples ETF (VDC; 3.3%).
The equivalent position in the iShares 1-3 Year Treasury Bond ETF (SHY; 3.9%) represents fixed-income holdings of the fund. The Other component in the chart collectively represents additional four ETFs with smaller average weights.
Under current management, the Aquila Three Peaks Opportunity Growth Fund added a significant amount of value. However, since the above evaluation period coincided with the recent bull market, it remains to be seen how the fund will perform over a full economic cycle. Historically, the fund’s distributions have been small, except for the one of 11.5% of NAV in 2011; future distributions of that magnitude will make the fund less suitable for taxable accounts. The substantial front-load makes the fund less attractive: the five-year annualized return at the MOP was about 1% lower than that at NAV.
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