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:

Cumulative RealAlpha™ for SHRAX

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:

Reference Weights for SHRAX

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
Amgen Inc. 5.65
Comcast Corp. 5.57
Weatherford International Ltd. 3.38
Core Laboratories NV 3.22
Sandisk Corp. 3.09
Forest Laboratories 3.02
Cree Inc. 2.51
Total 50.66

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.

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