Today’s profile in Barron’s features the Hartford Core Equity Fund (HAIAX; Class A shares). This $1.1 billion fund has a 5.5% maximum sales charge, 0.79% net expense ratio (subject to an upcoming renewal of the contractual reimbursement) and 33% turnover. According to the article
[The current manager] has managed the fund since its inception in 1998, and in the past 10 years, its 6% annualized return has beaten 92% of its peers and the Standard & Poor’s 500 index. Over the past three and five years, the large-blend fund produced an annualized total return of more than 10%, beating 99% of its peers and the S&P 500… Over the trailing three and five years, the fund fell only 80% to 90% as much as the S&P did, and exceeded the market’s gains by 2% to 4%.
First, with the front load taken into account, the fund did not beat its benchmark, the S&P 500® Index, over the 10 years through January 2016. Without the sales charge, the fund returned about 0.6% more than the index on an annualized basis over the same interval:
One of the long-lived and low-cost implementations of the index is the SPDR® S&P 500® ETF (SPY). Alpholio™’s calculations indicate that since late 2004 the fund returned more than the ETF in about 50% of all rolling 36-month periods, 47% of 24-month periods and 55% of 12-month periods. The median outperformance in a rolling 36-month period (not annualized) was zero and the mean one 0.76%:
Adjusting for Risk
While a comparison of periodic returns provide a simple measure of performance, it does not adjust for the fund’s risk. To gain a deeper insight, let’s apply Alpholio™’s patented methodology. In a simplest variant of this methodology, a reference portfolio of ETFs with fixed membership and weights is constructed for each analyzed fund. Here is the resulting chart of cumulative RealAlpha™ for the Hartford Core Equity (to learn more about RealAlpha™ and other performance measures, please visit our FAQ):
The fund produced a negative 0.8% of annualized discounted RealAlpha™. That outcome would have been much worse were it not for a strong rebound in the second half of 2014 and in 2015. At 14.2%, the fund’s standard deviation (a measure of volatility of returns) was approximately 0.25% higher than that of the reference portfolio. The fund’s RealBeta™ was 0.93.
Reference ETF Portfolio
The following chart illustrates weights of ETFs in the reference portfolio for the fund:
The fund had major equivalent positions in the iShares Morningstar Large-Cap Growth ETF (JKE; constant weight of 15.1%), Health Care Select Sector SPDR® Fund (XLV; 14.8%), iShares Morningstar Large-Cap Value ETF (JKF; 13.6%), PowerShares Dynamic Market Portfolio (PWC; 11.3%), SPDR Russell 3000® ETF (THRK; 10.9%), and Vanguard Mid-Cap ETF (VO; 9.7%). The Other component in the above chart collectively represents additional six ETFs with smaller fixed weights.
Over the past 11 years, the Hartford Core Equity Fund did not add value on a truly risk-adjusted basis. The fund could have been easily substituted by a collection of readily accessible ETFs. Such an ETF portfolio would offer a higher return and slightly lower volatility. The fund’s steep front load further detracts from it appeal.
Currently, the fund is fairly well diversified, with top-10 of its 68 holdings constituting less than 23% of assets. Historically, the fund had reasonably low distributions, which may haven made it suitable even for taxable accounts.
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