A recent profile in Barron’s features the Harding Loevner Global Equity fund (HLMGX; Advisor Class shares). This $870 million no-load fund has a reasonable 1.18% expense ratio and 21% annual turnover (a five-year average as of the second quarter of 2016). According to the article

The payoff for investors has been 6.6% average annual returns over the past decade, versus 5.0% for the average world stock fund tracked by Morningstar.

The primary benchmark for the fund is the MSCI All Country World Index (ACWI). One of the efficient implementations of this index is the iShares MSCI ACWI ETF (ACWI). According to Alpholio™ calculations, from April 2008 through July 2016 the fund returned more than the ETF in approximately 49% of all rolling 36-month periods, 62% of 24-month periods and 66% of 12-month periods.

The fund’s average cumulative (not annualized) outperformance over a rolling 36-month period was 1.5%. However, the median was minus 0.15%, which indicates that the fund significantly outperformed the ETF in a relatively small number of rolling periods. (A rolling period of 36 months tries to approximate an actual average holding interval. Many investments in a fund do not start precisely at the turn of a calendar year.)

To take the fund’s volatility and exposures into account, let’s employ the simplest variant of Alpholio™’s patented methodology. As other variants, this one also constructs a reference portfolio of ETFs that most closely tracks periodic returns of the analyzed fund. The reference portfolio has a fixed ETF membership and weights. Here is the resulting chart with statistics of the cumulative RealAlpha™ for the Harding Loevner Global Equity (to learn more about this and other performance measures, please visit our FAQ):

Cumulative RealAlpha™ for Harding Loevner Global Equity Fund (HLMGX) over 10 Years

Over the ten years through July 2016, the fund underperfomed its reference ETF portfolio. The volatility of the fund, measured as the standard deviation of monthly returns, was slightly higher than that of the reference portfolio. The fund’s RealBeta™ was close to that of a broad-based domestic equity ETF.

The following chart with related statistic shows the constant composition of the reference ETF portfolio for the fund over the same evaluation period:

Reference Weights for Harding Loevner Global Equity Fund (HLMGX) over 10 Years

The fund had major equivalent positions in the iShares MSCI EAFE Growth ETF (EFG), Guggenheim S&P 500® Top 50 ETF (XLG), SPDR® Morgan Stanley Technology ETF (MTK), iShares U.S. Medical Devices ETF (IHI), and iShares MSCI Singapore ETF (EWS). The iShares TIPS Bond ETF (TIP) represented fixed-income holdings of the fund. The Other component in the above chart collectively embodies additional six ETF with smaller weights (see table).

A similar analysis of the fund over the five years through July 2016 yields even worse results:

Cumulative RealAlpha™ for Harding Loevner Global Equity Fund (HLMGX) over 5 Years

Over this shorter evaluation period, the fund generated a negative annualized discounted RealAlpha™. Its cumulative return was almost 15% lower than that of the reference ETF portfolio, whose composition is depicted in the following chart and accompanying statistics:

Reference Weights for Harding Loevner Global Equity Fund (HLMGX) over 5 Years

This reference portfolio indicates that the fund had a considerable exposure to financials (IXG), U.S. energy (IYE), Japan equity (EWJ), and U.S. technology (MTK and IGV).

In terms of cumulative RealAlpha™, the fund’s performance over the three years through July 2016 was similar to that over ten years (its annualized discounted RealAlpha™ was slightly negative).

In sum, over the most recent three-, five- and ten-year periods, the Harding Loevner Global Equity fund failed to add value when compared to the respective reference ETF portfolios. Despite a sensible turnover, in 2014 and 2015 the fund had long-term capital gain distributions around 2.5-4% of the NAV, which made it less suitable for taxable accounts.

To learn more about the Harding Loevner Global Equity and other mutual funds, please register on our website.

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