A recent profile in Barron’s covers the DWS RREEF Global Infrastructure Fund (TOLLX, Class A shares). This $3.2 billion (as of March, 2014), six-year-old fund has a maximum sales charge of 5.75% and a net expense ratio of 1.41%. According to the article, the fund’s management delivered impressive results with

…the DWS RREEF Infrastructure fund returning an average of 17% over their last three years at the fund, putting it at the top of Morningstar’s world stock category.

This handily beats the MSCI ACWI ex-USA index that Morningstar uses as a benchmark for this fund. However, this benchmark is inappropriate because the fund currently has over 40% of its holdings in US stocks. Therefore, a true world index would be much more relevant.

At first glance, the cumulative RealAlpha™ chart tends to support the high ratings of the fund:

Cumulative RealAlpha™ for TOLLX

Since inception, the fund has generated over 5% of annualized discounted cumulative RealAlpha™ (please refer to FAQ for a detailed explanation of this term) and has done so with a volatility comparable to that of its reference ETF portfolio. However, the chart also shows that the fund’s cumulative RealAlpha™ was initially flat and started to grow only in 2011. This prompts a look at the cumulative return chart of the fund and its reference ETF portfolio:

Cumulative Return of TOLLX and Reference Portfolio

In 2011, the fund managed to generate a positive return despite a deep downturn in foreign markets. This explains why, subsequently, the compounding of returns caused the fund to outperform. To illustrate this further, here is a chart of the fund’s returns prior to 2011 compared with those of the Vanguard Total World Stock ETF (VT):

TOLLX and VT Return through 2010

In that initial period, the fund and the ETF provided similar returns. However, in 2011 the DWS RREEF Global Infrastructure fund clearly outperformed, mainly by minimizing the impact of the market downturn in August that year:

TOLLX and VT Return in 2011

The fund’s and the ETF’s returns again became comparable afterwards:

TOLLX and VT Return after 2011

The above analysis illustrates that a mutual fund’s outperformance can sometimes be attributed to a single outstanding year (or even a quarter) of returns. Investors who either bought and divested the fund prior to such a year, as well as those who purchased the fund afterwards, would not realize a full gain. This may not be properly reflected in traditional statistics or even a true risk-adjusted performance of the fund. Therefore, it is always beneficial to closely inspect the time periods in which the trend in cumulative RealAlpha™ of a fund drastically changes.

Only time will tell if the DWS RREEF Global Infrastructure Fund repeats its great 2011 performance in the future. The fund’s fact sheet indicates that is has a capacity to beat its more specific benchmark, the Dow Jones Brookfield Global Infrastructure Index.

To learn more about the DWS RREEF Global Infrastructure and other mutual funds, please register on our website.


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