A recent piece in Barron’s features the Seafarer Overseas Growth and Income Fund (SFGIX; Investor Class shares). This $876 million (at the end of February 2016) no-load fund has a 1.15% expense ratio (after a fee waiver/reimbursement through August 2017) and 28% turnover. According to the article:
Seafarer’s only fund […] is down an average of 1% a year over the past three years, far better than its peers, which are down an average of 7%. Last year, the MSCI Emerging Markets index fell 14.9%, and the category sank 13.8%. Seafarer lost 4.3%.
Smaller losses are hardly a consolation to investors. Nevertheless, the fund has clearly exhibited some defensive qualities in a challenged asset class, by focusing on dividend-paying equities and fixed-income securities.
The fund’s benchmark is the MSCI Emerging Markets Index. One of accessible implementations of this index is the iShares MSCI Emerging Markets ETF (EEM). Alpholio™’s calculations indicate that since inception the fund returned more than the ETF in about 89% of all rolling 12-month periods, and 100% of 24- and 36-month periods. The median outperformance over a rolling 12-month period was 7.4%. It has to be noted, though, that the fund only has a four-year history.
To gain insight into risk-adjusted returns of the Seafarer Overseas Growth and Income Fund, let’s employ a variant of Alpholio™’s patented analysis methodology. In this approach, a reference portfolio of ETFs with a fixed membership but variable weights is constructed for each analyzed fund. The difference of returns of the fund and its reference portfolio constitutes the cumulative RealAlpha™, which is shown in the following chart:
The fund generated approximately 2.5% of the regular and 3.1% of the lag annualized discounted RealAlpha™ (to learn more about this and other performance measures, please visit our FAQ). However, most of this outperformance was produced in just a four-month period at the beginning of 2015. At 13%, the fund’s standard deviation exceeded that of the reference portfolio by 3%. The fund’s RealBeta™, measured against a broad-based US stock market ETF, was 0.74.
The following chart depicts changes of ETF weights in the reference portfolio for the fund over the same analysis period:
The fund had major equivalent positions in the iShares 7-10 Year Treasury Bond ETF (IEF; average weight of 28.8%), iShares MSCI Emerging Markets ETF (EEM; 16.6%), iShares MSCI Hong Kong ETF (EWH; 10.4%), iShares MSCI Singapore ETF (EWS; 9.3%), PowerShares Dynamic Market Portfolio (PWC; 7.7%), and iShares Latin America 40 ETF (ILF; 6.3%). The Other component in the chart collectively represents additional six ETFs with smaller average weights.
The IEF position represents fixed-income holdings of the fund:
Nearly a quarter of the fund’s assets are in preferred stock, convertibles, and debt.
Over its lifespan, the Seafarer Overseas Growth and Income Fund added a considerable amount of value. However, this outperformance was achieved over a relatively short sub-period of time and at the expense of an elevated volatility as compared to that of the fund’s reference ETF portfolio. The fund’s historical distributions were modest except for a surprising 2.2% short-term capital gain in 2013. Only time will tell if the fund is suitable for taxable accounts.
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