Today’s profile in Barron’s features the Tocqueville International Value Fund (TIVFX). This $435 million no-load, mostly-foreign, multi-cap equity fund has a 1.25% capped expense ratio and 42% turnover. According to the article
Over the past 15 years, the fund is up an average of 8.1% annually, twice the average for its Morningstar foreign large blend category and better than 96% of its peers. The fund’s contrarian approach proved particularly effective last year, when it gained 7.3%, versus an 0.81% decline for its benchmark, the MSCI EAFE index.
One of the accessible and long-lived implementations of the fund’s benchmark is the iShares MSCI EAFE ETF (EFA). Alpholio™’s calculations show that over the ten years through March 2016 the fund returned more than the ETF in about 79% of all rolling 36-month periods. The median cumulative (not annualized) outperformance was 8.5%. Similarly, the fund outperformed the ETF in 74% of all rolling 24-month and 66% of 12-month periods over the same interval.
A comparison of returns does not adjust for the fund’s exposures or volatility. To gain more insight into those aspects of the fund, let’s employ the simplest variant of Alpholio™’s patented methodology. In this approach, a reference ETF portfolio with both fixed membership and weights is constructed to most closely track periodic returns of the fund. The difference between the cumulative return of the fund and that of its reference ETF portfolio is the cumulative RealAlpha™ (to learn more about this and other performance measures, please visit our FAQ). Here is the chart and related statistics for Tocqueville International Value over the past ten years:
At seven years into the analysis period, the fund generated practically no positive cumulative RealAlpha™. In other words, by mid-2013 an investor who put money into the fund at the end of March 2006 would not realize a better return than that produced by the reference ETF portfolio. It was only in the last 30 months of the analysis period that the fund added value over the reference portfolio. The standard deviation of the fund, a measure of volatility of returns, was slightly higher than that of the reference portfolio. The RealBeta™ of the fund, measured against a broad-based U.S. equity ETF, was close to one.
An analysis of the fund over the past five-year period yields similar results:
An investor who committed money to the fund at the end of March 2011 saw little value added over the reference portfolio until the beginning of 2015. Again, the standard deviation of the fund was slightly higher than that of the reference portfolio.
The following chart shows the static composition of the reference ETF portfolio over the ten-year evaluation period (it should be noted that the reference portfolio somewhat differs between the two analysis periods):
The fund had major equivalent positions in the iShares MSCI Japan ETF (EWJ), iShares MSCI France ETF (EWQ), iShares MSCI United Kingdom ETF (EWU), iShares 1-3 Year Treasury Bond ETF (SHY; representing fixed-income holdings), SPDR® S&P® 400 Mid Cap Growth ETF (MDYG), and iShares MSCI Germany ETF (EWG). The Other component in the chart collectively represents additional six ETFs with smaller constant weights, listed in the above table.
Compared to fixed reference ETF portfolios, the Tocqueville International Value Fund added a modest amount of value over the past five and ten years. In each analysis, the fund outperformed the reference portfolio late in the evaluation period. The fund has a reasonable expense ratio and turnover. However, in the past couple of years it had substantial distributions, above 6.3% of the NAV in 2014 and 3% in 2015. This made the fund less suitable for taxable accounts.
To learn more about the Tocqueville International Value and other mutual funds, please register on our website.
This weekend’s piece in Barron’s features the First Eagle Global Fund (SGENX; Class A shares). This $48 billion fund has a 5% maximum sales charge, 1.11% total expense ratio and 11% turnover. According to the article, the fund
…beats at least 93% of its world-allocation peers for every major trailing time period, according to Morningstar. The fund holds its own in bad times—the MSCI World Index is down 4.6% over the past 12 months, while the fund is up 0.6%. Though it’s trailing the index over the past five years—up 5.9% annually, versus the index’s 6.4%—it’s still beating 94% of its peers.
Not surprisingly, when a fund is unable to beat its index benchmark over a longer, more relevant period of time, the focus of the comparison has to shift to either a shorter period or to its peers. The reason for the latter is obvious: An average actively-managed fund underperforms its index benchmark by at least its expense ratio. Consequently, when a fund is compared to its peers in a given “category,” the threshold required for outperformance decreases.
The prospectus benchmark for First Eagle Global is the MSCI World Index. Unfortunately, the longest-lived ETF tracking this index, the iShares MSCI World ETF (URTH), has only been available since January 10, 2012. From February 2012 through March 2016, the fund returned less than the ETF in all rolling 36-month periods, with a median cumulative underperformance of 14.4%. Similarly, the fund returned a median cumulative 9.9% less than the ETF in approximately 93% of all rolling 24-month periods, and 3.3% in 92% of all 12-month periods. This is corroborated by annualized returns of the fund over the three- and five-year periods:
Over the years, the management team of the fund underwent quite a few changes. Therefore, long-term results are largely irrelevant to current investors. The present pair of managers has been with the fund since the end of February 2011, which will become the starting point of further analysis.
To adjust for the fund’s risk, let’s apply the simplest variant of Alpholio™’s patented methodology. This approach constructs a reference ETF portfolio with both fixed membership and weights that most closely tracks periodic returns of the analyzed fund. Here is the resulting cumulative RealAlpha™ for the First Eagle Global:
Over the evaluation period, the fund produced about 0.4% of annualized discounted cumulative RealAlpha™ (to learn about this and other performance measures, please visit our FAQ). As of January 2016, the fund lost all of its cumulative RealAlpha™ and recovered some of it in the following two months. The fund’s standard deviation, a measure of volatility of returns, was about 0.4% higher than that of its reference ETF portfolio.
The following chart shows constant ETF membership and weights in the reference portfolio for the fund over the same analysis period:
The fund had major equivalent positions in the Guggenheim CurrencyShares® Swiss Franc Trust (FXF), PowerShares DB G10 Currency Harvest Fund (DBV), SPDR® Morgan Stanley Technology ETF (MTK), Vanguard High Dividend Yield ETF (VYM), WisdomTree Europe Hedged Equity Fund (HEDJ), iShares iBoxx $ High Yield Corporate Bond ETF (HYG), iShares U.S. Telecommunications ETF (IYZ), iShares U.S. Aerospace & Defense ETF (ITA), iShares MSCI Japan ETF (EWJ), and Guggenheim CurrencyShares® Euro Trust (FXE). (Positions in DXJ and PVI are shown as zero due to rounding.)
While the First Eagle Global Fund sports an impressive long-term performance, over the past five years under current management it failed to beat its benchmark. When compared to a fixed reference ETF portfolio of similar volatility, the fund added a modest amount of value. Both results would have been much worse with the fund’s front load taken into account. Despite the low turnover stemming from a long average holding period of securities, the fund had significant historical distributions, incl. short-term capital gains. This made it less suitable for taxable accounts.
To learn more about the First Eagle Global and other mutual funds, please register on our website.