Analysis of Neuberger Berman International Equity Fund
analysis, mutual fund

A recent piece in Barron’s covers the Neuberger Berman International Equity Fund (NIQVX; Investor Class shares). This $1.5 billion, multi-cap foreign equity fund has a reasonable 1.02% expense ratio and 25% turnover. According to the article

Over the past 10 years, the fund returned 2.7% annually, beating the MSCI EAFE’s 1.9%, and 75% of its foreign stock-fund peers; over the past three years, its 3.4% return beat the benchmark by 1.6 percentage points, and 85% of its peers.

It has to be noted that the Investor Class shares of the fund (NIQVX) had an inception date on January 28, 2013. Consequently, the five- and ten-year performance figures in the article cannot apply to this share class. The only share class with a sufficient history is the Institutional Class (NBIIX; inception date of June 17, 2005), which we will instead use for longer-term analyses. This share class has a lower 0.85% expense ratio but requires a minimum $1 million initial investment, as opposed to only $1,000 for the Investor Class. Please keep in mind that due to a higher expense ratio, the performance of NIQVX would have been worse than that of NBIIX.

The prospectus benchmark for the fund is the MSCI EAFE Index. One of the efficient and long-lived implementations of this index is the iShares MSCI EAFE ETF (EFA). Alpholio™’s calculations show that over the ten years through July 2016, the fund returned more than the ETF in approximately 64% of all rolling 36-month periods, 56% of 24-month periods and 58% of 12-month periods. The median cumulative (not annualized) outperformance over a rolling 36-month period was around 2.7%.

While a comparison of rolling returns over simulated holding periods is instructive, it does not adjust for the fund’s volatility or exposures to various factors. To achieve the latter, let’s employ Alpholio™’s patented methodology. The simplest variant thereof constructs a reference portfolio of ETFs with both fixed membership and weights that most closely tracks the analyzed fund. Here is the resulting chart with statistics of the cumulative RealAlpha™ for the Neuberger Berman International Equity Fund (to learn more about this and other performance measures, please visit our FAQ):

Cumulative RealAlpha™ for Neuberger Berman International Equity Fund (NBIIX) over 10 Years

Over the ten years through July 2016, the fund subtracted a significant amount of value on a risk-adjusted basis. Its reference ETF portfolio produced a 73.6% cumulative return, more than double the 31.3% of the fund, and did so with a slightly lower volatility. The RealBeta™ of the fund was a bit higher than that of a broad-based domestic stock ETF.

The following chart illustrates the constant composition of the reference ETF portfolio for the fund over the same evaluation period:

Reference Weights for Neuberger Berman International Equity Fund (NBIIX) over 10 Years

The fund had major equivalent positions in the WisdomTree Europe SmallCap Dividend Fund (DFE), iShares MSCI EAFE Growth ETF (EFG), iShares North American Natural Resources ETF (IGE), WisdomTree Japan SmallCap Dividend Fund (DFJ), iShares U.S. Telecommunications ETF (IYZ), and PowerShares Dynamic Media Portfolio (PBS). The Other component in the chart collectively represents six additional ETFs with smaller weights.

A similar analysis over the five-year period through July 2016 reveals that the fund cumulatively returned 18.8% compared to 28% for its reference ETF portfolio that had a slightly lower volatility. While the composition of the reference ETF portfolio was different from the previous one, the fund continued to have a substantial exposure to foreign small-cap stocks:

Reference Weights for Neuberger Berman International Equity Fund (NBIIX) over 5 Years

Over this evaluation period, the fund had major equivalent positions in the iShares MSCI EAFE Small-Cap ETF (SCZ), iShares MSCI EAFE Growth ETF (EFG), iShares International Treasury Bond ETF (IGOV), MSCI EAFE Hedged Equity ETF (DBEF), iShares MSCI Sweden ETF (EWD), and iShares MSCI Ireland Capped ETF (EIRL). The Other component in the above chart collectively represents two additional ETFs listed in the above table.

Over the five- and ten-year periods through July 2016, the Neuberger Berman International Equity Fund failed to add value over its reference ETF portfolios. The fund generally had only moderate dividend income distributions, although in 2007 it also had a capital gain distribution of close to 14% of its NAV. This suggests caution when using the fund in taxable accounts.

To learn more about the Neuberger Berman International Equity and other mutual funds, please register on our website.


Pin It
Analysis of Neuberger Berman Multi-Cap Opportunities Fund
analysis, mutual fund

Today’s mutual fund profile in Barron’s features the Neuberger Berman Multi-Cap Opportunities Fund (NMUAX; Class A shares). This $2.2 billion fund has a hefty front load of 5.75% along with a more reasonable expense ratio of 1.18%. It sports a low 11% turnover ratio charged for the management of a fairly concentrated portfolio of 30 to 40 stocks, of which top-ten holdings currently constitute 33%. Morningstar® classifies this fund as Large Blend, although it invests “across styles and capitalizations.”

According to the article

“The market offers an objective measurement of performance,” he says. “You get a very crisp answer.” That answer for investors in Multi-Cap Opportunities, which Nackenson has run since December 2009, has been an average annual return of 17.6% over the past three years, better than 97% of all large-blend funds. In 2013, the fund was up 43%, at the very top of its category and with very little index overlap.

Let’s analyze the fund’s performance from the Alpholio™ perspective. (Please note that this analysis does not take into account the substantial sales charge of the fund, which would significantly degrade the results.) Here is the cumulative RealAlpha™ chart for the fund, spanning the last four years under the current manager:

Cumulative RealAlpha™ for NMUAX

The fund’s cumulative RealAlpha™ has been flat to negative from early 2010 through 2012. While it strongly rebounded in 2013, the trend in the most recent couple of months has been negative. Compared to a reference portfolio of ETFs, the fund generated a modest amount (fraction of a percentage point) of annualized RealAlpha™ at a similar level of volatility.

The following chart shows the ETF weights in the reference portfolio over the same analysis period:

Reference Weights for NMUAX

The fund’s top equivalent positions were in the iShares Russell 1000 Growth ETF (IWF; average weight of 28.3%), Vanguard Consumer Staples ETF (VDC; 15.6%), iShares S&P Mid-Cap 400 Value ETF (IJJ; 12.6%), Vanguard Industrials ETF (VIS; 10.1%), Vanguard Energy ETF (VDE; 8.5%), and Vanguard Financials ETF (VFH; 7.4%). The Other component of the chart includes six additional ETFs with smaller average weights.

The final chart provides a hypothetical buy-sell signal for the fund, derived from the smoothed cumulative RealAlpha™:

Buy-Sell Signal for NMUAX

As can be seen, by following this signal a prospective investor would largely avoid the long period of underperformance and timely capitalize on the recent period of outperformance of the fund.

In sum, the overall performance of Neuberger Berman Multi-Cap Opportunities in the last four years has been unimpressive on a truly risk-adjusted basis. Although the fund produced good results last year, there are early indications that this outperformance may not continue in the near future.

To learn more about Neuberger Berman Multi-Cap Opportunities and other mutual funds, please register on our website.


Pin It