Analysis of JPMorgan Equity Income Fund
analysis, mutual fund

Today’s profile piece in Barron’s features the JPMorgan Equity Income Fund (OIEIX; Class A shares). This $10.6 billion fund has a 5.25% maximum sales charge, 1.04% capped net expense ratio and 22% turnover. According to the article

[The] fund has beaten 94% of its peers over the past five and 10 years.

The prospectus benchmark for the fund is the Russell 1000® Value Index. One of the long-lived implementations of this index is the iShares Russell 1000 Value ETF (IWD). Alpholio™’s calculations show that since late 2004 the fund returned more than the ETF in only about 46% of all rolling 36-month periods, 45% of 24-month periods and 42% of 12-month periods. The median underperformance was 1.4%, 1.6% and 0.8%, respectively.

While a comparison of periodic returns is instructive, it does not adjust for the fund’s risk. To accomplish the latter, let’s apply a variant of Alpholio™’s patented methodology that constructs a custom reference portfolio of ETFs for each analyzed fund. The reference portfolio has a fixed ETF membership but variable weights, which allows for better tracking of the fund. Here is the resulting chart of the cumulative RealAlpha™ for JPMorgan Equity Income:

Cumulative RealAlpha™ for JPMorgan Equity Income Fund (OIEIX)

The fund generated -0.7% of the regular and +0.4% of the lag annualized discounted RealAlpha™ (to learn more about this and other performance measures, please visit our FAQ). This indicates that the fund’s security selection did not add value on a fully risk-adjusted basis. At 12.7%, the fund’s standard deviation (a measure of volatility) was approximately 0.5% lower than that of the reference portfolio. The fund’s RealBeta™ was around 0.87.

The following chart demonstrates ETF weight changes in the reference portfolio over the same analysis period:

Reference Weights for JPMorgan Equity Income Fund OIEIX)

The fund had major equivalent positions in the iShares Morningstar Large-Cap Value ETF (JKF; average weight of 19.4%), iShares Select Dividend ETF (DVY; 14.9%), SPDR® Dow Jones® Industrial Average ETF (DIA; 13.5%), iShares Morningstar Large-Cap ETF (JKD; 11.1%), First Trust Value Line® Dividend Index Fund (FVD; 9.7%), and iShares S&P 500 Growth ETF (IVW; 9.4%). The Other component in the chart collectively represents six additional equity ETF with smaller average weights.

Over the past 11 years, the JPMorgan Equity Income Fund did not add value on a truly risk-adjusted basis, although it outperformed its lag reference ETF portfolio. With over 100 individual holdings and top-ten holdings accounting for 24% of assets, the fund appears to be reasonably diversified. The fund distributes income monthly and capital gains annually; historical distributions were not excessive, which made the fund suitable for taxable accounts. A steep front load does not improve the fund’s appeal.

To learn more about the JPMorgan Equity Income and other mutual funds, please register on our website.


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Analysis of Thornburg Global Opportunities Fund
analysis, mutual fund

Today’s profile in Barron’s features the Thornburg Global Opportunities Fund (THOAX; Class A shares). This $2.5 billion fund has a 4.5% maximum sales charge, 1.32% actual operating expenses (after a temporary fee waiver), and 45% turnover. According to the article

The fund is notable not just for its category-leading 11.6% annual returns over the past five years, but also for its approach. It is extremely flexible—it can invest in any size company in any market—and extremely focused.

One of the accessible implementations of the fund’s benchmark is the iShares MSCI ACWI ETF (ACWI). Since the ETF’s inception in March 2008, the fund returned more than the ETF in about 98% of all rolling 36-month periods, 87% of 24-month periods and 77% of 12-month periods. The mean and median of the fund’s outperformance in a rolling 36-month period was 17.1% and 12.8%, respectively.

Comparing returns against a single static benchmark does not adjust for the fund’s risk. To accomplish the latter, let’s look into the performance of Thornburg Global Opportunities through the lens of Alpholio™’s patented methodology. One variant of this methodology constructs a custom reference portfolio of ETFs with a fixed membership but variable weights that most closely tracks returns of an analyzed fund. The difference between the returns of the fund and those of its reference portfolio is the RealAlpha™ (to learn more about this and other performance measures, please visit our FAQ). Here is the resulting chart of the cumulative RealAlpha™ since the fund’s inception:

Cumulative RealAlpha™ for Thornburg Global Opportunities Fund (THOAX)

Since inception, the fund produced about 3.6% of annualized discounted cumulative RealAlpha™. However, most of this value was added since mid-2013. Of note was an approximately 10% drop in the cumulative RealAlpha™ from August to September 2015. This was a result of a dramatic price decline of one of its main holdings, which underscores the concentrated nature of the fund. At 20.3%, the fund’s standard deviation was about 3% higher than that of its reference ETF portfolio. The fund’s RealBeta™ was around 1.07.

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

Reference Weights for Thornburg Global Opportunities Fund (THOAX)

The fund had major equivalent positions in the iShares Morningstar Mid-Cap Growth ETF (JKH; average weight of 21.8%), iShares MSCI Switzerland Capped ETF (EWL; 12.7%), Vanguard Financials ETF (VFH; 12.5%), iShares MSCI Canada ETF (EWC; 12.2%), iShares MSCI Malaysia ETF (EWM; 10.3%), and iShares MSCI Japan ETF (EWJ; 8.6%). The Other component in the chart collectively represents additional six ETFs with smaller average weights.

Since inception, the Thornburg Global Opportunities Fund added a significant amount of value of a risk-adjusted basis but at the expense of an elevated volatility due to concentrated holdings. Currently, the fund’s top-ten positions account for 48% of its assets. At present, the fund is approximately evenly invested in the U.S. and foreign equities, which should be taken into account in the construction of the overall investment portfolio. The fund’s relatively small historical distributions indicate that despite active management it may still be a good fit for taxable accounts. The substantial front load detracts from the fund’s appeal.

To learn more about the Thornburg Global Opportunities and other mutual funds, please register on our website.


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