In today’s issue, Barron’s profiles the MainStay ICAP International Fund (ICEUX, class I shares; ICEVX, class A shares). According to the article

Over the long haul, the fund has a stellar record, beating 87% of its peers over 10 years, and 76% over 15. Senser has helped lead the fund since its 1997 inception.

First, there is no mention of the portfolio manager who left the fund in early July 2014, after an almost 27-year long tenure. Hence the effort to convey a sense of management continuation by using the “has helped lead” phrase.

Second, the article uses class I shares as a basis for its evaluation of the fund. This share class requires a minimum $5 million initial investment, which is impractical for most individual investors. Clearly, such a high threshold is designed to convert a former accessible no-load share class to an “institutional” share class:

Effective 9/1/06, ICAP International Fund was renamed MainStay ICAP International Fund. At that time, the Fund’s existing no-load shares were redesignated Class I shares.

These shares have a lower expense ratio than the class A shares (0.95% vs. 1.27%) and are not encumbered by the initial sales charge of up to 5.5%. Consequently, the performance of class I shares has been much better than that of the class A shares:

MainStay ICAP International Fund - Performance

Although class C shares of the fund have an investment minimum of only $1,000, they carry a prohibitively high expense ratio of 2.14%. For the purpose of further analysis, we will use class A shares. (However, with a minimum initial investment of $25,000, class A shares are not individual-investor-friendly either.) This share class was introduced in September 2006. Therefore, as of this writing 10-year performance statistics are not available.

The primary benchmark for the fund is the MSCI EAFE index, whose practical embodiment is the iShares MSCI EAFE ETF (EFA). The ETF outperformed the fund in terms of both annualized returns and the Sharpe ratio over the three- and five-year periods through July 2014.

Alpholio™ calculated that since inception class A shares of the fund returned more than the ETF in about 57% of all rolling 12-month periods. The median outperformance was 0.36% but the mean a negative 0.02%. However, given the fund’s recent focus on Japanese stocks, a static index like the MSCI EAFE may not be the best benchmark.

Let’s take a look at the risk-adjusted performance of the MainStay ICAP International fund using Alpholio™’s methodology. Here is the cumulative RealAlpha™ chart for the fund:

Cumulative RealAlpha™ for ICEVX

Since 2006, the fund’s cumulative RealAlpha™ trended flat to lower on average. As a result, the annualized discounted regular RealAlpha™ for the fund was a negative 0.46% and the lag one a negative 0.03% (to learn about the differences between the regular and lag RealAlpha™, please consult our FAQ). At 19.6%, the fund’s standard deviation was about 1.75% higher than that of its reference ETF portfolio.

The following chart illustrates the composition of the fund’s reference ETF portfolio in the same analysis period:

Reference Weights for ICEVX

The fund had top equivalent positions in the iShares Europe ETF (IEV; average weight of 23.4%), iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD; 16.6%), iShares MSCI Germany ETF (EWG; 15.9%), iShares MSCI Japan ETF (EWJ; 14.4%), iShares MSCI United Kingdom ETF (EWU; 7.0%), and SPDR® EURO STOXX 50® ETF (FEZ; 5.8%). The Other component in the chart collectively represents six additional ETFs with smaller average weights.

Overall, since inception class A shares of the MainStay ICAP International fund delivered an unimpressive performance when measured on a fully-risk adjusted basis. A substantial front sales charge coupled with a steep initial investment do not add to the fund’s appeal. A recent departure of a long-time manager also casts doubt on the future performance of the fund.

To learn more about the MainStay ICAP International and other mutual funds, please register on our website.


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