Today’s profile in Barron’s features the Leuthold Core Investment Fund (LCORX, retail shares; LCRIX, institutional shares). This $850 million no-load, stock and bond fund has a net expense ratio of 1.15% (retail shares) and a 81% turnover. According to the article, the fund’s
7.1% annualized return over the past five years trails the Standard & Poor’s 500 by about nine percentage points. Yet, the fund ranks in the top 2% of the Morningstar moderate-risk category over the past decade, and some of its strongest years have been in downturns.
It should be noted that current managers of the stock portion of the fund have been at the helm only since early 2011, while the manager of the bond part started in August 2013. In addition, in 2013 the Leuthold Asset Allocation fund was merged into Core Investment. Nevertheless, this post will assess a long-term performance of the fund.
The fund’s primary prospectus benchmark is the S&P 500® index. One of accessible implementations of this index is the SPDR® S&P 500® ETF (SPY). According to Alpholio™’s calculations, since 2005 the fund returned more than the ETF in only 37% of all rolling 12-month periods. The frequency of outperformance increased to 47% for rolling 24-month periods and 44% for rolling 36-month periods.
The fund’s secondary prospectus benchmark is the Lipper Flexible Portfolio. According to Lipper,
Funds are assigned to the flexible portfolio (FX) objective if they do not state a percentage that is expected to be invested in each particular asset class.
This is a result of the fund’s declared asset mix fluctuation: 30% – 70% equity exposure and 30% – 70% fixed income exposure. Given these wide ranges, it is hardly practical to use such a reference portfolio as a benchmark.
In one variant of Alpholio™’s patented methodology, the reference ETF portfolio has fixed membership but variable weights. This variant lends itself well to the analysis of the Leuthold Core Investment fund because it can easily track changes in the fund’s composition over time. Here is a chart of the cumulative RealAlpha™ for the fund based on this methodology:
Since late 2004, the fund generated about -0.95% of regular and 0.4% of lag annualized discounted cumulative RealAlpha™ (to learn more about RealAlpha™, please visit our FAQ). The regular RealAlpha™ curve is the ultimate benchmark for the fund, while the lag one represents the RealAlpha™ generated vs. a reference ETF portfolio with a one-month lag to the fund. The substantial disparity between the two curves after 2010 indicates rapid changes in the fund’s holdings as a result of a momentum investing style.
At about 12.1%, the fund’s standard deviation was about 1.1% higher than that of the reference ETF portfolio. The fund’s RealBeta™ was 0.67.
The following chart shows changes of ETF weights in the reference portfolio over the same analysis period:
The fund had top equivalent positions in the iShares 1-3 Year Treasury Bond ETF (SHY; average weight of 30.5%), iShares Morningstar Mid-Cap Growth ETF (JKH; 12.3%), Vanguard Materials ETF (VAW; 10.4%), PowerShares Dynamic Market Portfolio (PWC; 10.3%), Vanguard Consumer Staples ETF (VDC; 7.8%), and iShares MSCI Canada ETF (EWC; 6.2%). The Other component in the above chart collectively represents six additional ETFs with smaller average weights.
Over the past ten years, the Leuthold Core Investment Fund delivered unimpressive results on a truly risk-adjusted basis. In 2014, the fund had series of distributions that totaled almost 7% of its net asset value (NAV); this indicates that the fund may not be the best fit for taxable accounts. It remains to be seen if the relatively new management team will improve the fund’s results in the future.
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