An article in Barron’s describes a “turnaround” of the $537M Loomis Sayles Growth fund under the new manager in the last three years. Apparently, the manager is searching for deep value within growth sectors:
Despite his obvious mandate for growth, Hamzaogullari takes a surprisingly value-oriented perspective when scrutinizing potential investments. Sure, he looks for companies with a sustainable competitive advantage, good profitability, and quality management. But he only buys stocks that are trading at a 40% discount to his estimate of the company’s intrinsic value.
Let’s analyze the fund’s performance from the Alpholio™ perspective. Here is the cumulative RealAlpha™ chart for the fund since early 2005:
The chart clearly shows that the downward trend in cumulative RealAlpha™ was unbroken since the current manager took over the fund in May 2010. An a truly risk-adjusted basis, the fund did not generate any value for its shareholders. This is compounded by the maximum 5.75% front load of the fund, which is not taken into account in the above analysis.
The reference weights chart depicts the major investment themes of the fund in the same analysis period:
The fund’s current top three equivalent positions are in the Vanguard Health Care ETF (VHT; weight of 22.8%), iShares North American Tech ETF (IGM; 20.2%), and iShares Morningstar Mid-Cap Growth ETF (JKH; 13.6%). As of June 30, 2013, the fund had 35 equity holdings. While the manager personally visited each company, this evidently did not add much value.
Here is how the fund fared in the three years to July 31, 2013 against its stated primary benchmark, the Russell 1000® Growth Index, for which a proxy is the iShares Russell 1000 Growth Index ETF (IWF); data from Morningstar:
|Fund||Standard Deviation||Return||Sharpe Ratio|
|Loomis Sayles Growth||14.02||17.82||1.24|
|iShares Russell 1000 Growth ETF||13.87||17.76||1.25|
Despite a slightly higher return, the fund had a higher volatility and, consequently, a lower Sharpe Ratio than a practical realization of its benchmark. Again, the return figure does not take into account the front load of the fund; if it did, the annualized return would be 15.55%, further depressing the Sharpe Ratio.
In sum, while it may be true that the current manager did better than his predecessor, the fund’s risk-adjusted performance continued to be unimpressive. Since early 2006, investors would have been better off with a reference portfolio of ETFs calculated by Alpholio™. So far, there is no indication of a change in this long-term trend.