Today’s piece in Barron’s profiles the Glenmede Large Cap Core Fund (GTLOX) and the Glenmede Large Cap Growth Fund (GTLLX). This post will focus on the former fund. This $1.6 billion no-load fund sports a relatively low 0.87% expense ratio and has a 73% turnover. According to the article
The Large Cap Core fund has edged out the Standard & Poor’s 500 in eight of the past 10 calendar years; its returns nearly matched the index’s in the other years. Its average annual return of 8.8% over the past decade beats 96% of its large-blend peers.
However, the prospectus benchmark for the fund is not the S&P 500® Index but the Russell 1000® Index. One of the accessible implementations of the latter is the iShares Russell 1000 ETF (IWB). Alpholio™’s calculations show that since inception the fund returned more than the ETF in about 80% of all rolling 36-month periods, 79% of 24-month periods and 71% of 12-month periods.
A single index does not fully account for the fund’s risk. In one variant of Alpholio™’s patented methodology, the fund’s performance is compared to that of a dynamic reference ETF portfolio with fixed membership and variable weights. Here is a chart of the resulting cumulative RealAlpha™ for Glenmede Large Cap Core:
The fund did not generate any appreciable RealAlpha™ from late 2004 through the third quarter of 2012. The fund added almost all of the value in a relatively short period from the fourth quarter of 2012 through the end of 2014. Given this delay, the overall regular and lag annualized discounted RealAlpha™ measures for the fund were only around 0.7% (to learn more about RealAlpha™, please visit our FAQ). At 15.8%, the fund’s standard deviation was slightly higher than that of the reference ETF portfolio. The fund’s RealBeta™ was approximately 1.05. (An analysis of the fund using a reference ETF portfolio with both fixed membership and weights produced similar results.)
The following chart shows changes of ETF weights in the reference portfolio for the fund over the same evaluation period:
The fund had top equivalent positions in the iShares S&P 500 Growth ETF (IVW; average weight of 26.3%), PowerShares Dynamic Market Portfolio (PWC; 17.7%), iShares Morningstar Mid-Cap ETF (JKG; 16.2%), Vanguard Financials ETF (VFH; 10.0%), iShares Morningstar Mid-Cap Growth ETF (JKH; 6.2%), and Vanguard Energy ETF (VDE; 5.9%). The Other component in the chart collectively represents additional six equity ETFs with smaller average weights.
The above findings illustrate how a fund’s annualized three-, five- and ten-year returns (and the corresponding ratings) can be heavily influenced by a short burst of recent outperformance. For most of the Glenmede Large Cap Core fund’s existence, investors realized little benefit on truly risk-adjusted basis. Only time will tell if the fund continues to add value in the future; so far in 2015, the cumulative RealAlpha™ curve is rather flat.
Despite having a substantial turnover, historically the fund managed to limit its capital gain and dividend distributions, which may make it suitable even for taxable accounts. The lack of a front sales charge and a comparably low expense ratio certainly enhance the fund’s appeal.
To learn more about the Glenmede Large Cap Core and other mutual funds, please register on our website.
A recent article in Barron’s says that managers of the Glenmede Small Cap Equity Fund (GTCSX, Advisor shares) outperformed their peers:
Mancuso, who’s managed the fund since 1993, and Colarik, who joined him in 2001, have been doing extraordinarily well lately. Their $1 billion fund returned 48% last year, beating its average small-blend competitors by 10.5 percentage points. That outperformance is something of an anomaly, though the fund’s long-term record is still impressive, outpacing about 85% of its peers over the past five- and 10-year periods.
This 23-year old, no-load, core small-cap fund with $1.1 billion in AUM has about 100 holdings. It beat its Russell 2000® index benchmark in one-, three-, five- and ten-year periods as well as since inception through 2013, at a comparable risk level measured by a standard deviation of returns. The Advisor shares of the fund carry an expense ratio of 0.91%, while the Institutional shares (GTSCX; $10 million minimum initial investment) lower it to 0.75%.
Let’s take a look at how Glenmede Small Cap Equity performed from the Alpholio™ perspective. Here is a chart of cumulative RealAlpha™ for the fund:
After the true adjustment for risk by its reference ETF portfolio, the fund’s cumulative RealAlpha™ was largely flat from early 2005 through 2010 and in 2012. The fund somewhat rebounded in the first half of 2011 and significantly outperformed, as noted in the article, in 2013.
The overall annualized regular RealAlpha™ was only 0.18%. At 0.98%, the annualized lag RealAlpha™ was higher and its curve was above that of the regular RealAlpha™, which indicates that the new investment decisions made by the management team generally panned out. The annualized standard deviation of the fund in the entire analysis period was 20.3%, slightly above that of its reference portfolio.
Here is the chart of ETF weights in the reference portfolio over the same analysis period:
Not surprisingly, the fund’s equivalent position with the highest average weight was in the iShares Core S&P Small-Cap ETF (IJR; average weight of 20.8%). The next top equivalent positions were in the iShares Russell 2000 Growth ETF (IWO; 18.4%), iShares Morningstar Small-Cap ETF (JKJ; 18.1%), Vanguard Extended Market ETF (VXF; 15.6%), and Vanguard Small-Cap Growth ETF (VBK; 15.6%). Finally, the equivalent position in the Vanguard Financials ETF (VFH; 4.0%) indicates the fund’s past propensity to invest in equities of financial companies.
The above findings indicate that, to a large extent, the fund could have been emulated by a reference portfolio of just a few popular small-cap ETFs. Only in a couple of years in the nine-year analysis interval did the fund significantly outperform this portfolio. A perfectly accurate prediction of all outperformance periods is generally impossible. However, Alpholio™’s buy-sell signal derived from the smoothed cumulative RealAlpha™ shows that most of such periods could be identified in advance and captured for an investor’s benefit:
Otherwise, the only way an investor could realize a full value added by the fund would be to make a long-term commitment. That approach, in turn, carries other risks, such as potential management changes stemming from a long tenure, or future underperformance caused by increased AUM in a small-cap sector.
To learn more about the Glenmede Small Cap Equity and other mutual funds, please register on our website.