This weekend’s profile in Barron’s covers the Davenport Value & Income Fund (DVIPX). This $509 million, no-load, large-cap fund sports a reasonable 0.89% current (0.93% prospectus) expense ratio and 25% turnover. According to the article

Value & Income has returned 15.4% annually over the past five years, better than 85% of its large-cap value peers, says Morningstar. The return so far this year is 9.71%, two percentage points better than the S&P 500, and ahead of 74% of its competitors.

With an inception date at the end of 2010, the fund has a relatively short history. Therefore, the following analysis will focus on the three- and five-year periods through August 2016.

The prospectus benchmark for the fund is the S&P 500 Index. One of the efficient implementations of this index is the Vanguard S&P 500 ETF (VOO). Alpholio™ calculations indicate that the fund returned more than the ETF in only 8% of all rolling 36-month periods, 22% of 24-month periods and 35% of 12-month periods. The median underperformance over a rolling 36-month periods was 4.9%.

A comparison of rolling returns, which determines relative gains or losses of the fund over typical holding periods, does not adjust for the fund’s volatility or exposures. Alpholio™’s patented methodology provides an insight into the latter aspects of the fund’s performance. A simplest variant of this methodology constructs a reference ETF portfolio with both fixed membership and weights. Here is the resulting chart with statistics of the cumulative RealAlpha™ for the Davenport Value & Income:

Cumulative RealAlpha™ for Davenport Value & Income Fund (DVIPX) over 5 Years

Over the analysis period, the fund produced virtually no annualized discounted RealAlpha™ (to learn about this and other performance measures, please visit our FAQ). The volatility of the fund, measured as the standard deviation of monthly returns, was higher than that of the reference ETF portfolio. The RealBeta™ of the fund was below that of a broad-based equity market ETF.

The following chart with related statistics shows the constant reference portfolio for the fund:

Reference Weights for Davenport Value & Income Fund (DVIPX) over 5 Years

The fund had major equivalent positions in the Vanguard High Dividend Yield ETF (VYM), PowerShares Dynamic Large Cap Value Portfolio (PWV), First Trust Large Cap Growth AlphaDEX® Fund (FTC), SPDR® Barclays High Yield Bond ETF (JNK), SPDR® S&P® Homebuilders ETF (XHB), and iShares Global Consumer Staples ETF (KXI). The Other component in the chart collectively represents additional four ETFs with smaller fixed weights.

Over the three-year period through August 2016, the fund performed a bit better but still failed to generate a significant amount of positive RealAlpha™:

Cumulative RealAlpha™ for Davenport Value & Income Fund (DVIPX) over 3 Years

Although over this shorter evaluation period the composition of reference ETF portfolio was different, VYM remained the top equivalent position:

Reference Weights for Davenport Value & Income Fund (DVIPX) over 3 Years

The new top equivalent positions included the PowerShares S&P 500 Quality Portfolio (SPHQ), iShares MSCI United Kingdom ETF (EWU), PowerShares Dynamic Food & Beverage Portfolio (PBJ), iShares U.S. Insurance ETF (IAK), and Industrial Select Sector SPDR® Fund (XLI).

The final chart with associated statistics compares the total return of the Davenport Value & Income Fund and the Vanguard High Dividend Yield ETF since the fund’s inception:

Total Return for Davenport Value & Income Fund (DVIPX) and Vanguard High Dividend Yield ETF (VYM)

The ETF outperformed the fund in terms of all measures listed in the above table. The average correlation between monthly returns of the fund and the ETF over a rolling 36-month period was 0.97.

In sum, the Davenport Value & Income Fund failed to add a substantial amount of value when compared to its reference ETF portfolios. Despite its fairly focused portfolio (targeted 45-55 holdings), the fund could effectively have been substituted by a single comparable ETF with superior performance characteristics.

To learn more about the Davenport Value & Income and other mutual funds, please register on our website.

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