The latest profile in Barron’s features the Columbia Dividend Income Fund (LBSAX; Class A shares). This $9.1 billion large-cap fund has a 5.75% maximum sales charge, 1.02% expense ratio and 27% turnover. According to the article
The fund has returned 8% annually over the past 10 years, beating the S&P and 95% of its large-value fund peers. Performance has been consistent in more recent periods, as well; the fund returned 9% in the past year, ahead of the S&P’s 4% rise and 93% of its peers.
The prospectus benchmark for the fund is the Russell 1000® Index. One of the low-cost and long-lived implementations of this index is the iShares Russell 1000 ETF (IWB). Alpholio™’s calculations indicate that from December 2002 through May 2016 the fund returned more than the ETF in approximately 52% of all rolling 36-month periods, 53% of 24-month periods and 39% of 12-month periods. The median cumulative (not annualized) outperformance over the 36-month period was only 1%, while the mean return difference was minus 2.1%.
Although useful, a comparison of rolling returns does not take the fund’s volatility into account. To adjust for the latter, let’s employ a simplest variant of Alpholio™’s patented methodology that constructs a reference ETF portfolio for the fund. This reference portfolio has both fixed membership and weights, which allows for a straightforward construction and maintenance. Here is the resulting chart of the cumulative RealAlpha™ and related statistics for the Columbia Dividend Income fund over the past 10 years:
Over the entire analysis period, the fund produced approximately negative 1.2% of annualized discounted RealAlpha™ (to learn more about this and other performance measures, please visit our FAQ). This was mostly due to a significant decline in cumulative RealAlpha™ from mid-2010 through mid-2015. The fund’s standard deviation, a measure of annualized volatility of returns, was slightly above that o the reference portfolio. The fund’s RealBeta™ was about 18% below that attributed to a broad-based equity ETF.
The following chart and statistics provide the static composition of the reference ETF portfolio for the fund over the same evaluation interval:
The fund had major equivalent positions in the Consumer Staples Select Sector SPDR® Fund (XLP), iShares S&P 100 ETF (OEF), iShares Morningstar Large-Cap Value ETF (JKF), PowerShares Dynamic Large Cap Value Portfolio (PWV), First Trust Value Line® Dividend Index Fund (FVD), and iShares Morningstar Large-Cap ETF (JKD). The Other component in the chart collectively represents the additional six ETFs with smaller constant weights, listed in the above table.
Over the past 10 years, the Columbia Dividend Income Fund failed to add value for its investors on a truly risk-adjusted basis. A simple portfolio of ETFs produced about 20% higher cumulative return at a lower volatility. The fund’s steep front load further deteriorated its performance. In 2014 and 2015, the fund had significant capital-gain distributions, which made it less suitable for taxable accounts.
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