Today’s profile in Barron’s features the Aberdeen U.S. Small Cap Equity Fund (GSXAX; Class A shares). This $817 million fund has a maximum 4.25% sales charge, 1.47% net expense ratio and 29% turnover. According to the article
With just 50 holdings, the […] fund ranks in the top 1% of its small-cap growth Morningstar peers for one-, three-, and five-year returns. Last year it returned 8.3%, while the Russell 2000 was down 4.4%. That trend has continued in 2016. The fund is up 11.2% this year versus just 4.7% for the index.
Although the fund’s inception date was in November 1998, the current management predominantly started in October 2008. Therefore, the following analyses will use November 2008, the first full month under current management, as a starting point.
The prospectus benchmark for the fund is the Russell 2000 Index. One of the efficient implementations of this index is the iShares Russell 2000 ETF (IWM). Alpholio™’s calculations indicate that the fund returned more than the ETF in about 64% of all rolling 36-month periods, 60% of 24-month periods and 68% of 12-month periods:
The median cumulative (not annualized) outperformance overa a rolling 36-month period was 2.8%.
A comparison of rolling returns is useful in assessing the fund’s average performance across typical holding periods. However, it does not adjust for the fund’s exposures and risk. To gain insight into the latter, let’s employ a variant of Alpholio™’s patented methodology. In this approach, a reference ETF portfolio with fixed membership and weights is constructed to most closely track periodic returns of the analyzed fund. Here is the resulting chart and related statistics of cumulative RealAlpha™ for Aberdeen U.S. Small Cap Equity:
From November 2008 through May 2015, the fund generated practically no RealAlpha™ (to learn more about this and other performance measures, please visit our FAQ). The fund’s cumulative RealAlpha™ subsequently surged through January 2016 and has remained largely flat since. The fund’s standard deviation (a measure of volatility of returns) was approximately 0.6% higher than that of the reference ETF portfolio. The fund’s RealBeta™, measured against a broad market index ETF, was 1.17.
The following chart and statistics illustrate the constant composition of the reference ETF portfolio for the fund over the same analysis period:
The fund had major equivalent positions in the iShares Morningstar Small-Cap ETF (JKJ), SPDR® S&P® 600 Small Cap Growth ETF (SLYG), PowerShares S&P 500 Quality Portfolio (SPHQ), iShares Micro-Cap ETF (IWC), SPDR® S&P® 600 Small Cap ETF (SLY), and SPDR® S&P® Regional Banking ETF (KRE). The Other component in the above chart collectively represents six additional ETFs with smaller weights listed in the table.
Under current management, the Aberdeen U.S. Small Cap Equity Fund added a substantial amount of value on a risk-adjusted basis. However, the fund significantly outperformed its fixed ETF reference portfolio in only a seven-month burst starting in June 2015. This was likely due to some of its relatively concentrated holdings producing outsize returns over that short period, and may not be repeated in the future.
Although, according to the article, only 28% of the fund’s assets are in load shares, the steep sales charge detracts from its appeal. Over the past ten years, the fund had only three relatively small distributions, which made it suitable even for taxable accounts.
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