An article in Barron’s covers the ClearBridge Aggressive Growth (SHRAX) mutual fund whose manager is about to celebrate a 30th anniversary at the helm. While this is certainly a very long tenure, has it produced outstanding results? The author thinks so:
Freeman, 60 years old, has compiled superb long-term numbers. Since the fund’s inception in October 1983—when he launched it with his mentor and friend, Eliot Fried—the fund has averaged an annual return of 12.1%, versus 10.7% for the S&P 500. It has also beaten the S&P based on one-, three-, five-, 10- and 20-year returns, a testament to its consistency. There have been some volatile stretches, however, such as in 2008, when the fund lost 42%, trailing the Standard & Poor’s 500 index by 5.4 percentage points.
Since, as its name suggests, the fund pursues a growth strategy, it may not be appropriate to compare its returns to those of a large-cap blend index. Figures from Morningstar indicate that in the past 15 years the fund’s beta vs. the S&P 500® total return index ranged from 1.11 to 1.24 and its volatility was higher than that of the index as well. So, the fund’s performance may not be as good on a risk-adjusted basis.
Here is a cumulative RealAlpha™ chart for the fund produced by the Alpholio™ methodology:
The chart shows that the fund started to underperform on a risk-adjusted basis long before the onset of the financial crisis. Since 2008, the cumulative RealAlpha™ for the fund has been largely flat.
The following chart illustrates how the reference exchange-traded product (ETP) portfolio for the fund evolved since early 2005:
Recently, the fund’s three largest equivalent positions were in the iShares Russell Mid-Cap Growth ETF (IWP; weight of about 41%), iShares Nasdaq Biotechnology ETF (IBB; 24%), and Vanguard Energy ETF (VDE; 23.6%). This is consistent with the current top ten holdings of the fund:
|Security||% of Investments|
|Biogen Idec Inc.||10.83|
|UnitedHealth Group Inc.||7.46|
|Anadarko Petroleum Corp.||5.93|
|Weatherford International Ltd.||3.38|
|Core Laboratories NV||3.22|
With about 48% of holdings in stocks with market capitalization below $25B and a tilt toward growth, the fund hardly falls into a pure large-cap blend category. Therefore, comparing the fund’s returns to those of the S&P 500® index is misleading.
The Alpholio™ analysis demonstrates that the fund’s performance on a truly risk-adjusted basis in the past eight years has been unimpressive. Just as past performance of an investment is not a guarantee of future outcomes, a long management tenure is no guarantee of outstanding results, especially when a proper benchmark is used.