A recent piece in Barron’s covers the AllianzGI NFJ Mid-Cap Value Fund (PQNAX; Class A shares). This $1.1 billion mid-cap value fund has a 5.50% maximum sales charge, 0.99% expense ratio and 45% turnover. According to the article
Over the past five years, the fund’s almost 15% return has beaten 89% of its rivals.
Two members of the fund’s current management team of four started in June 2009. Therefore, this analysis spans the interval from that month through the end of 2017.
The prospectus benchmark for the fund is the Russell Midcap® Value Index. One of the efficient implementations of this index is the iShares Russell Mid-Cap Value ETF (IWS). Alpholio™ calculations indicate that the fund returned more than the ETF in only 12% of all rolling 36-month periods, 19% of 24-month periods, and 35% of 12-month periods:
The median cumulative (not annualized) 36-month underpeformance of the fund vs. the ETF was 6.9%.
The rolling returns analysis focuses on relative returns over typical holding periods but ignores the fund’s volatility and exposures. To gain insight into the latter aspects, let’s employ Alpholio™’s patented methodology. In its simplest variant, the methodology constructs a fixed membership and weight reference ETF portfolio that most closely tracks periodic returns of the fund.
Here is the resulting chart of the cumulative RealAlpha™ for AllianzGI NFJ Mid-Cap Value (to learn more about this and other performance measures, please visit our FAQ):
To make the implementation practical, the number of ETFs in the reference portfolio was limited to six. Except for a brief period beginning in May 2017, the fund failed to outperform its reference portfolio of comparable volatility.
The following chart with statistics shows the constant composition of the reference ETF portfolio:
The fund had equivalent positions in the First Trust Large Cap Value AlphaDEX® Fund (FTA), First Trust Industrials/Producer Durables AlphaDEX® Fund (FXR), iShares U.S. Consumer Goods ETF (IYK), VanEck Vectors Agribusiness ETF (MOO), iShares MSCI Switzerland ETF (EWL), and Guggenheim S&P 500® Equal Weight Technology ETF (RYT). These ETFs represented average exposures generated by securities held by the fund.
The final chart with statistics depicts the cumulative total return of the fund and its benchmark ETF:
Despite a slightly higher volatility and downside deviation, the ETF had higher Sharpe and Sortino ratios than those of the fund.
In sum, under current management the AllianzGI NFJ Mid-Cap Value Fund underperformed its benchmark ETF and added little value over its reference ETF portfolio. The fund’s steep front load further diminished its appeal. In 2017, the fund had substantial long- and short-term capital distributions, which made it less suitable for taxable accounts.
To learn more about the Prudential AllianzGI NFJ Mid-Cap Value and other mutual funds, please register on our website.
A recent piece in Barron’s proposes an investment into seven actively-managed mutual funds. This recommendation is motivated by the following observation:
A long, humiliating period for professional stockpickers might be giving way to something different. Stocks that have moved in near unison in recent years are beginning to chart more distinct paths. Data points that haven’t mattered in a decade, like the relationship between prices and fundamental measures of value, are starting to have more sway on returns. The divide between cheap stocks and expensive ones remains exceptionally wide, which could mean last year’s shift in favor of value investing is just the beginning.
Supposedly, were on the verge of entering the “stockpicker’s market,” as shown in this chart:
The myth that low correlations between stock returns lead to active manager’s outperformance has long been debunked. Similarly, a high active share is cited as one of the reasons actively-managed funds will outperform their passive peers. Please refer to our earlier post for a discussion of this topic.
So, this post will instead focus on the long-term performance of the funds featured in the article:
The following charts with related statistics show the cumulative RealAlpha™ for each fund that has at least ten years of history through 2016 (to learn more about this and other patent-based performance measures Alpholio™ uses, please consult our FAQ). In all analyses, the number of ETFs in the reference portfolio was limited to no more than seven. The ETF membership and weights in each reference portfolio were constant throughout the entire evaluation period.
Here is a chart with statistics for the AllianzGI NFJ Dividend Value Fund (PNEAX; Class A shares):
The fund cumulatively returned over 20.5% less than its reference ETF portfolio of lower volatility.
Here is a chart with statistics for the DFA US Large Cap Value Portfolio (DFLVX; Class I shares):
The fund cumulatively returned about 8.5% more than its reference ETF portfolio of lower volatility.
Here is a chart for the Dodge & Cox Stock Fund (DODGX):
While the fund produced a 14% higher cumulative return than its reference ETF portfolio, by early 2016 it also lost virtually all of its cumulative RealAlpha™ generated since 2007.
The following chart is for the Sound Shore Fund (SSHFX):
On a cumulative return basis, the fund underperformed its reference ETF portfolio by over 7.7%; most of that loss occurred over the past two years.
This chart is for the T. Rowe Price Equity Income Fund (PRFDX):
The fund’s cumulative return was over 23.3% lower than that of its reference ETF portfolio of a slightly higher volatility.
The final chart is for the Vanguard U.S. Value Fund (VUVLX; Investor Class shares):
The fund cumulatively returned about 9.1% more than its reference ETF portfolio of a slightly lower volatility. However, as recently as at the end of October 2016, the cumulative RealAlpha™ was only 4.4%.
In conclusion, only three out of the six funds analyzed above added some value when compared to their respective reference ETF portfolios. The rest of the funds underperformed, and in some cases quite significantly. It remains to be seen whether a combination of the expected low stock correlations in the market and a high active share of these funds leads to their significant outperformance in 2017.
To learn more about these and other mutual funds, incl. the composition of their reference ETF portfolios, please register on our website.
To learn more about the these and other mutual funds, including the composition of their reference ETF portfolios, please register on our website.