A recent piece in Barron’s profiles the Invesco Balanced-Risk Commodity Strategy Fund (BRCAX; Class A shares). This $760 million fund has a maximum 5.50% sales charge, 1.55% expense ratio and 17% turnover. According to the article
Over that [painful five-year] period, the fund averaged an annual 10% loss—brutal, though it was one of the smallest logged over the period among the largest commodities funds tracked by Morningstar. And over the past year, as commodities flirted with a recovery and then pushed ahead, its 5% return has beaten 90% of its peers.
The prospectus benchmark for the fund is the Bloomberg Commodity Index – Total Return. While there are no ETFs implementing this index, there are two ETNs that do: the iPath® Bloomberg Commodity Index Total Return℠ ETN (DJP) and the ETRACS Bloomberg Commodity Index Total Return ETN (DJCI). Although DJP has a longer history and more assets, it also has a higher expense ratio than DJCI. Alpholio™ calculations show that since December 2010 the fund returned more than DJP in approximately 88% of all rolling 36-month periods, 73% of 24-month periods and 61% of 12-month periods. The median cumulative (not annualized) outperformance over a rolling 36-month period was 3.7%.
Since initial investments in a fund do not necessarily align with calendar year boundaries, rolling-period returns approximate typical performance over various holding periods. However, they do not adjust for a fund’s volatility or exposure to various factors. To take those into account, let’s employ the simplest variant of Alpholio™’s patented methodology. For each analyzed fund, this variant constructs a reference ETF portfolio with both fixed membership and weights. Here is the resulting chart of cumulative RealAlpha™ for the Invesco Balanced-Risk Commodity Strategy Fund (to learn more about this and other performance measures, please consult our FAQ):
From December 2010 (the first full month since its inception) through July 2016, the fund failed to outperform its reference ETF portfolio, which had a substantially lower volatility. The RealBeta™ of the fund, measured against a broad-based domestic equity ETF, was comparable to that of a traditional balanced portfolio.
The following chart shows the constant composition of the reference ETF portfolio for the fund over the same evaluation period:
The fund had major equivalent positions in the PowerShares DB Commodity Index Tracking Fund (DBC), WisdomTree Continuous Commodity Index Fund (GCC), PowerShares DB Base Metals Fund (DBB), iShares Gold Trust (IAU), SPDR® Gold Shares (GLD), and PowerShares DWA Developed Markets Momentum Portfolio (PIZ). The Other component in the chart collectively represents additional two ETFs with smaller weights, the iShares Silver Trust (SLV) and PowerShares Preferred Portfolio (PGX). (The latter corresponds to fixed-income holdings of the fund.)
The following chart shows the total return and traditional performance statistics for the fund over the same analysis period:
The reference ETF portfolio, as computed above, assumes a continuous (i.e. daily) rebalancing. In practice, a reference portfolio may be rebalanced less frequently. Here is a chart along with conventional performance statistics for the reference ETF portfolio with annual rebalancing and weights rounded to the nearest multiple of 0.5%:
Despite comparable Sharpe and Sortino ratios, the fund had a lower annualized return, as well as higher annualized standard and downside deviations, than the annually-rebalanced reference ETF portfolio.
Since its inception, the Invesco Balanced-Risk Commodity Strategy Fund failed to add value on a truly risk-adjusted basis. The fund could effectively have been substituted by a simple ETF portfolio with fixed weights and infrequent rebalancing. The fund’s steep front load further detracted from its appeal. The fund had only a couple of small dividend income distributions, which made it suitable for taxable accounts.
To learn more about the Invesco Balanced-Risk Commodity Strategy and other mutual funds, please register on our website.