A recent piece in Barron’s features the RBC Emerging Markets Equity Fund (REEAX; Class A shares). This $328 million fund has a 5.75% maximum sales charge, 1.14% expense ratio and 19% turnover. According to the article
The RBC fund […] beat its benchmark MSCI Emerging Markets index over the past three years, returning an average 4.9% annually.
One of the long-lived implementations of the fund’s benchmark is the iShares MSCI Emerging Markets ETF (EEM). Alpholio™ calculations show that since inception, the fund returned more than the ETF in 75% of all rolling 12-month periods (the fund’s history is too short to draw meaningful conclusions from the fewer 24- and 36-month rolling periods).
The fund underperformed the ETF in the last seven of the total 28 annual rolling periods.
While useful, such a rolling return comparison provides a limited insight into the fund’s performance. In particular, it does not take into account the exposures or volatility of the fund. To gain more information, let’s apply Alpholio™’s patented methodology. In its simplest variant, it constructs a reference ETF portfolio with fixed membership and weights to most closely track periodic returns of the analyzed fund. Here is the resulting chart with statistics of the cumulative RealAlpha™ for RBC Emerging Markets Equity (to learn more about this and other performance measures, please visit our FAQ):
The fund’s cumulative RealAlpha™ peaked in December 2014. Over the entire evaluation period, the fund failed to add value over its reference ETF portfolio, which had a comparable volatility.
The following chart with associated statistics shows the constant composition of the reference ETF portfolio for the fund over the same analysis period:
The fund had equivalent positions in the iShares Asia 50 ETF (AIA), iShares Emerging Markets High Yield Bond ETF (EMHY), iShares MSCI India ETF (INDA), Columbia Emerging Markets Consumer ETF (ECON), and BLDRS Emerging Markets 50 ADR Index Fund (ADRE).
The final chart with related statistics illustrates the performance of the fund and its dominant equivalent position, the aforementioned AIA:
While the fund had a lower volatility, its return, Sharpe and Sortino ratios were below those of the ETF.
Over its relatively short history, the RBC Emerging Markets Equity Fund delivered an unimpressive performance after adjustment for exposures. A steep front load further detracts from the fund’s appeal. Only time will tell whether the fund’s focus on long-term earnings of its holdings produces better results.
To learn more about the RBC Emerging Markets Equity and other mutual funds, please register on our website.