A recent article in Barron’s profiles the Columbia Contrarian Core Fund (LCCAX, Class A shares). This $4.6 billion fund has a maximum initial sales charge of 5.75%, gross expense ratio of 1.14% and, as of the last fiscal year, turnover rate of 47%. As of the end of June 2014, the fund held 74 stock positions. According to the article:
Columbia Contrarian Core has beaten 98% of its large-blend peers over 10 years, up an average of 10.2% annually, versus the large-blend category average of 7.6%, according to Morningstar.
The prospectus benchmark for the fund is the Russell 1000 index. A practical implementation of the index is the iShares Russell 1000 ETF (IWB). Since the current manager began managing the fund in March 2005, it does not make sense to look beyond nine years of past performance. In that timeframe, the fund returned less than the ETF in only three years.
The fund exhibited a higher volatility than that of the ETF in three-, five- and ten-year periods through June 2014. In terms of the simplest risk-adjustment performance measure, the Sharpe ratio, the fund underperformed the ETF in the same three- and five-year periods, but outperformed it over ten years.
Let’s take a look at the Columbia Contrarian Core Fund’s performance from the Alpholio™ perspective. Here is a cumulative RealAlpha™ chart for the fund:
Since early 2005, the fund generated about 2.8% of annualized discounted regular RealAlpha™ (to learn more about Alpholio™’s performance measures, please consult our FAQ). However, a corresponding lag RealAlpha™ measure was about 0.4% lower (notice that in the chart, the lag RealAlpha™ curve is below the regular one). This indicates that not all new investment ideas worked as well as expected. The overall standard deviation of the fund and its reference portfolio were similar at about 15.8%.
The following chart illustrates ETF weights in the reference portfolio for the fund over the same analysis period:
The fund had top equivalent positions in the iShares S&P 100 ETF (OEF; average weight of 26.9%), iShares Morningstar Large-Cap Growth ETF (JKE; 18.6%), Guggenheim S&P 500® Equal Weight ETF (RSP; 13.5%), iShares Morningstar Large-Cap ETF (JKD; 12.1%), Vanguard Financials ETF (VFH; 8.5%), and SPDR Russell 3000® ETF (THRK; 4.8%). The Other component of the chart contains six additional ETFs with smaller average weights.
According to the article, the fund’s management team applies a
…stock-picking strategy [that] begins with a screen of stocks, primarily from the Russell 1000 index, that have a market value of $2 billion or more and are trading in the bottom third of their 52-week price range… What they’re looking for: stocks hated by others—regardless of whether they’re growth or value—that their research has determined will be able to recover.
As the above analysis demonstrated, this contrarian approach served the Columbia Contrarian Core Fund well. Its truly risk-adjusted performance in the past nine years has been consistently strong. The only drawback are the high front loads or elevated expense ratios charged by the fund. Class B shares are not available for purchase, while Class C shares charge up to 1% initially and 1.89% in ongoing gross expenses.
To learn more about the Columbia Contrarian Core and other mutual funds, please register on our website.