Analysis of Fidelity Blue Chip Growth Fund
analysis, mutual fund

A recent piece in Barron’s profiles the Fidelity Blue Chip Growth Fund (FBGRX). This $21 billion no-load fund sports a 0.89% net expense ratio and 51% turnover. According to the article

Year to date [the fund] has returned 6.5%, beating the 1.2% for the Standard & Poor’s 500 index, and the 5.7% for its benchmark, the Russell 1000 Growth Index. The fund has beaten 93% of its large-cap growth peers in the past five- and 10-year periods.

The current manager took over the fund at the beginning of July 2009, so that date will serve as a starting point for our further analyses. The prospectus benchmark for the fund is the Russell 1000® Growth Index. One of the low-cost implementations of this index is the iShares Russell 1000 Growth ETF (IWF). Alpholio™’s calculations show that the fund returned more than the ETF in approximately 88% of all rolling 36-month periods, 65% of 24-month periods and 71% of 12-month periods. The median amount of rolling 36-month outperformance was about 5%.

Comparing only returns does not account for risk. To get a better insight into the fund’s performance, let’s employ a variant of Alpholio™’s patented methodology that constructs a reference portfolio of ETFs with fixed membership but variable weights. This portfolio dynamically tracks the fund’s composition and core exposures over time. Here is the resulting chart of cumulative RealAlpha™ for Fidelity Blue Chip Growth:

Cumulative RealAlpha™ for Fidelity Blue Chip Growth (FBGRX)

The fund produced about 0.7% of the regular and 1.3% of the lag annualized discounted RealAlpha™ (to learn more about this and other performance measures, please visit the FAQ). Most of the positive RealAlpha™ was generated over just one year beginning in the second quarter of 2013. At 15.4%, the fund’s standard deviation was a bit higher than that of its reference ETF portfolio. The fund’s RealBeta™ was around 1.13.

The following chart illustrates changes to ETF weights in the reference portfolio:

Reference Weights for Fidelity Blue Chip Growth (FBGRX)

The fund had major equivalent positions in the iShares Morningstar Large-Cap Growth ETF (JKE; average weight of 30.7%), PowerShares QQQ (QQQ; 19.5%), iShares S&P Mid-Cap 400 Growth ETF (IJK; 12.4%), Vanguard Consumer Discretionary ETF (VCR; 11.0%), iShares Morningstar Mid-Cap Growth ETF (JKH; 7.1%), and iShares Russell 2000 Growth ETF (IWO; 5.3%). The Other component in the chart collectively represents additional five stock ETFs with smaller average weights.

Under current management, the Fidelity Blue Chip Growth Fund added a decent amount of value on a truly risk-adjusted basis; however, its outperformance was concentrated in a relatively short period of time. This actively-managed fund’s reasonable expense ratio adds to its appeal. Although consisting mostly of long-term capital gains, the fund’s recent substantial distributions (over 5% of NAV in each of 2013 and 2014) made it less suitable for taxable accounts.

To learn more about the Fidelity Blue Chip Growth Fund and other mutual funds, please register on our website.


Pin It
Analysis of Diamond Hill Large Cap Fund
analysis, mutual fund

Today’s profile in Barron’s features the Diamond Hill Large Cap Fund (DHLAX; Class A shares). This $3.4 billion fund has a 5% maximum sales charge, a reasonable 1.05% expense ratio and 24% turnover. According to the article

From October 2002 through the end of last month, the fund’s annualized return of 10.8% bested the Russell 1000 Index by 1.8 percentage points, and its peers by three percentage points.

The fund’s primary prospectus benchmark is the Russell 1000® Index. Over the 10 years through November 2015, the fund returned 7.46% (without the sales charge) and 6.91% (with the sales charge) per year compared to 7.61% for the index. The fund also failed to outperform its benchmark over the most recent three- and five-year periods.

One of the accessible implementations of the index is the iShares Russell 1000 ETF (IWB). Alpholio™’s calculations indicate that under current management since October 2002 the fund returned more than the ETF in about 60% of all rolling 36-month periods, 62% of 24-month periods and 57% of 12-month periods. The median 36-month outperformance was only 1.5%.

Comparing a fund’s returns against returns of a single index or ETF does not account for risk. Let’s apply Alpholio™’s patented methodology that constructs a reference portfolio of ETFs with a fixed membership and variable weights. Such a portfolio adjusts for the analyzed fund’s volatility and composition to determine the true value added or subtracted by active management. Here is the resulting cumulative RealAlpha™ chart for Diamond Hill Large Cap since the end of 2004:

Cumulative RealAlpha™ for Diamond Hill Large Cap Fund (DHLAX)

The fund produced negative 0.9% of the regular and negative 0.3% of lag annualized discounted RealAlpha™ (to learn more about our measures of performance, please visit our FAQ). At 14.8%, the fund’s standard deviation was approximately 0.7% higher than that of its reference ETF portfolio. The fund’s RealBeta™ was around 0.94.

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

Reference Weights for Diamond Hill Large Cap Fund (DHLAX)

The fund had major equivalent positions in the Vanguard Energy ETF (VDE; average weight 18.0%), Vanguard Value ETF (VTV; 14.8%), iShares Morningstar Large-Cap ETF (JKD; 12.4%), SPDR® Dow Jones® Industrial Average ETF (DIA; 11.4%), Vanguard Financials ETF (VFH; 10.3%), and Vanguard Health Care ETF (VHT; 8.6%). The Other component in the chart collectively represents additional six ETFs with smaller average weights. Of those, the iShares 1-3 Year Treasury Bond ETF (SHT; 5.1%) represents fixed-income holdings of the fund.

Since late 2004, the Diamond Hill Large Cap Fund did not add value on a truly risk-adjusted basis. The fund’s substantial front load further decreases its most recent 10-year return below that of its benchmark index. The fund’s distributions of about 4% of NAV in 2013 and 2014 suggest that it may not be the best fit for taxable accounts.

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


Pin It
Analysis of Henderson European Focus Fund
analysis, mutual fund

Today’s piece in Barron’s profiles the Henderson European Focus Fund (HFEAX; Class A shares). This $3.7 billion European equity fund has a 5.75% maximum sales charge, 1.31% operating expense and 75% turnover. According to the article

Under [the manager’s] guidance, the fund has returned an average of 14% a year, more than twice the MSCI Europe index.

The primary benchmark for the fund is the MSCI Europe Index. The only available ETF tracking this index, the iShares Core MSCI Europe ETF (IEUR), has been in existence since June 2014. Therefore, we will instead use the iShares Europe ETF (IEV) for comparison purposes. Alpholio™’s calculations show that since inception the fund returned more than the ETF in approximately 93% of all rolling 36-month periods, 87% of 24-month periods and 84% of 12-month periods. The median outperformance over a rolling 36-month period was 23.5%.

While comparing returns is useful, it does not account for the fund’s risk. Let’s apply a variant of Alpholio™’s patented methodology which constructs a dynamic reference ETF portfolio for each analyzed fund. The ETF membership in such a portfolio is fixed but the ETF weights can change over time to better track the analyzed fund. Here is a chart of the cumulative RealAlpha™ for the Henderson European Focus:

Cumulative RealAlpha™ for Henderson European Focus Fund (HFEAX)

Over the past 11 years, the fund generated about 4.5% of the regular and 4.1% of lag annualized discounted RealAlpha™ (to learn more about RealAlpha™, please visit our FAQ). However, the fund did so mostly since 2009 and with high volatility: its standard deviation was around 22.5% vs. 19.5% for the reference ETF portfolio. The fund’s RealBeta™ of 1.22 also underscores its risk.

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

Reference Weights for Henderson European Focus Fund (HFEAX)

The fund had top equivalent positions in the iShares MSCI United Kingdom ETF (EWU; average weight of 30.6%), iShares MSCI Germany ETF (EWG; 14.3%), iShares MSCI Canada ETF (EWC; 11.2%), iShares MSCI Eurozone ETF (EZU; 11.1%), iShares MSCI Italy Capped ETF (EWI; 8.5%), and iShares MSCI Sweden ETF (EWD; 7.5%). The Other component in the chart collectively represents additional six ETFs with smaller average weights.

It is worth noting that according the fund’s summary prospectus

Under normal circumstances, the Fund invests at least 80% of its net assets in equity securities of European companies.

This supports the finding that at times the fund had a considerable exposure to Canadian stocks (or natural resources), as indicated by its equivalent position in EWC.

Under the same management since inception, the Henderson European Focus Fund added a significant amount of value, although at the expense of elevated volatility. The fund’s steep front load detracts from its appeal. At times, the fund had significant distributions (e.g. over 5.8% of NAV in 2011), which could potentially make it less suitable for taxable accounts going forward.

To learn more about the Henderson European Focus Fund and other mutual funds, please register on our website.


Pin It
Recent Posts
Recent Comments
Archives
Meta