The Bruce Fund (ticker symbol BRUFX) is a mutual fund with approx. $371M in assets under management. Currently, Morningstar awards this fund Five Stars in the Conservative Allocation category. Morningstar’s last analyst report on the fund, titled “Impressive, but not without a fair amount of risk,” was prepared back in August 2010. Let’s take a look at the fund’s performance from the Alpholio™ perspective.

First, the total return chart, which assumes reinvestment of all distributions into the fund and each member of the reference portfolio, respectively:

Cumulative Return of BRUFX and Reference Portfolio

The chart demonstrates four major period of the fund’s performance:

  • From the beginning of the analysis period in May 2005 to the beginning of 2008, the fund outperformed its reference portfolio of exchange-traded products (ETPs)
  • From early 2008 to the trough of the recent market downturn in March 2009, the fund underperformed its reference portfolio
  • The fund began to recover in mid-2009, eventually exceeding the cumulative total return of the reference portfolio at the end of 2010
  • Finally, starting in the second quarter of 2011, the fund outperformance slowed.

This is further illustrated by the cumulative RealAlpha™ chart:

Cumulative RealAlpha™ for BRUFX

This chart shows that the fund lost all the cumulative RealAlpha™ it generated from the beginning of the analysis period through the second quarter of 2007, and then proceeded to lose another 25% of that alpha or so. While the fund generated about 50% of alpha from the beginning of 2009 through the first quarter of 2011, its subsequent alpha trend has been flat to slightly negative.

The overall statistics of the fund’s performance are unimpressive:

BRUFX Statistics

While the fund’s volatility of about 13% (measured by the annualized standard deviation of returns in the entire analysis period) was relatively low compared to that of the stock market, it was approx. 65% higher than that of the reference portfolio. This partly explains why the fund severely underperformed at the onset of the recent market downturn in the second half of 2008.

The automatic buy-sell signal generated by Alpholio™ allowed for the capture of most of the positive alpha trend of the fund:

Buy-Sell Signal for BRUFX (Smooth)

Finally, the following chart shows the ETP members of the reference portfolio that best explain the fund’s performance over time:

Reference Weights for BRUFX

As a recent article from The Wall Street Journal indicates, the fund may at times hold a significant cash position, which is reflected by the dominant weight of SHY (a short-term Treasury bond ETF) in the reference portfolio. The bond position of the fund was best explained by a combination of TLT (a 20+ year Treasury bond ETF) and LQD (an investment-grade corporate bond ETF). As the article mentions, at times the fund also held smaller capitalization stocks, incl. microcaps, as explained by an equivalent position in JKJ (a small-cap ETF). The riskier stock investments of the fund had their equivalent position in IBB (a biotech ETF). Finally, the fund periodically had an equivalent position in IGE (a North American natural resources ETF).

Of note is also a periodically significant equivalent position in EWC (an MSCI Canada ETF), which is included in the Other component of the above chart for clarity. For example, this position peaked at about 23% of the reference portfolio at the beginning of the second quarter in 2011. Because of the natural-resource driven nature of the Canadian economy, this position is somewhat similar to that in IGE.

For reference, the actual classes of fund holdings at the end of 2012 are shown here (see p. 3 of the semi-annual shareholder report):

BRUFX Portfolio Dec 2012

Despite the fact that the above chart represents just a point-of-time snapshot of the fund’s portfolio, it is consistent with equivalent reference positions calculated by Alpholio™.

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