Analysis of TIAA-CREF Large-Cap Growth Fund
analysis, mutual fund

A recent piece in Barron’s covers the TIAA-CREF Large-Cap Growth Fund (TIRTX; Retail Class shares). This $5.2-billion no-load, large-cap growth fund has an attractive 0.76% expense ratio but a relatively high 94% turnover. According to the article

Over the past year, the fund’s 36% return has outpaced 89% of its large-cap growth peers […]. The fund’s nearly 17% average annual return over the past five years has beaten 82% of peers.

The fund’s prospectus benchmark is the Russell 1000® Growth Index. One of the accessible and efficient implementations of this index is the iShares Russell 1000 Growth ETF (IWF). Alpholio™ calculations show that since inception the fund returned more than the ETF in approximately 48% of all rolling 36-month periods, 44% of 24-month periods and 42% of 12-month periods. The median cumulative (not annualized) underperformance over a rolling 36-month period was 0.46%:

Rolling 36-Month Returns for TIAA-CREF Large-Cap Growth Fund (TIRTX) and iShares Russell 1000 Growth ETF (IWF)

The rolling returns comparison determines a relative performance of the fund over typical holding periods. However, it ignores the volatility and exposures of the fund. To gain more insights into these aspects, let’s employ Alpholio™’s patented methodology. The simplest variant of this approach constructs a fixed-membership and fixed-weight reference ETF portfolio that most closely tracks periodic returns of the analyzed fund. Here is the resulting chart with statistics of the cumulative RealAlpha™ for TIAA-CREF Large-Cap Growth (to learn more about this and other performance measures, please consult our FAQ):

Cumulative RealAlpha™ for TIAA-CREF Large-Cap Growth Fund (TIRTX)

To make the implementation practical, in the above analysis the number of ETFs in the reference portfolio was limited to three. Overall, the fund added virtually no value over its reference portfolio of comparable volatility.

The following chart with associated statistics shows the static composition of the reference ETF portfolio:

Reference Weights for TIAA-CREF Large-Cap Growth Fund (TIRTX)

The fund had equivalent positions in the iShares Morningstar Large-Cap Growth ETF (JKE), PowerShares Dynamic Large Cap Growth Portfolio (PWB), and iShares North American Tech-Software ETF (IGV). These ETFs represented average exposures of the fund over the evaluation period.

The next chart with associated statistics presents the capital asset pricing model (CAPM) of the fund relative to its benchmark ETF:

CAPM for TIAA-CREF Large-Cap Growth Fund (TIRTX) and iShares Russell 1000 Growth ETF (IWF)

Although not statistically significant (t-statistic much smaller than two), the negative alpha intercept indicates that the fund failed to outperform the ETF on a risk-adjusted basis.

The final chart with related statistics depicts the cumulative total (i.e. with reinvested distributions) return of the fund and its benchmark ETF:

Total Return for TIAA-CREF Large-Cap Growth Fund (TIRTX) and iShares Russell 1000 Growth ETF (IWF)

The fund underperformed the ETF according to all traditional measures.

In sum, despite a competitive expense ratio, the actively managed TIAA-CREF Large-Cap Growth Fund failed to substantially outperform its passive benchmark ETF or its reference ETF portfolio. In addition, over the past five years the fund produced considerable capital gain distributions, which made it less suitable for taxable investment accounts.

To learn more about the TIAA-CREF Large-Cap Growth and other mutual funds, please register on our website.


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Analysis of TIAA-CREF Bond Fund
analysis, mutual fund

Today’s profile in Barron’s features the TIAA-CREF Bond Fund (TIORX; Retail Class shares). This $3.5 billion no-load fund has a 0.62% expense ratio and an elevated 309% turnover. According to the article

[active management] has guided [this] low-cost fund to 4.5% average annual returns over the past three years—better than 85% of intermediate-bond funds tracked by Morningstar and ahead of the 4.2% average annual gains for the Barclays U.S. Aggregate Bond Index.

The current lead manager took the reins of the fund in late August 2011. Therefore, this analysis will span from September 2011 through June 2016.

The primary prospectus benchmark for the fund is the Barclays U.S. Aggregate Bond Index. One of the accessible implementations of this index is the iShares Core U.S. Aggregate Bond ETF (AGG). Alpholio™’s calculations show that in the above time frame the fund returned more than the ETF in approximately 91% of all rolling 36-month periods, 80% of 24-month periods and 68% of 12-month periods. The fund’s median cumulative (not annualized) outperformance over a rolling 36-month period was 2.1%.

A comparison of rolling returns tries to approximate the average holding period of the fund. However, it does not take the fund’s composition and volatility into account. To adjust for the latter, let’s apply the simplest variant of Alpholio™’s patented methodology. In this approach, a reference ETF portfolio with both fixed membership and weights is custom-built to most closely track returns of the analyzed fund. Here is the resulting chart and related statistics of cumulative RealAlpha™ for the TIAA-CREF Bond Fund:

Cumulative RealAlpha™ for TIAA-CREF Bond Fund (TIORX)

Over the entire analysis period, the fund added virtually no RealAlpha™. At 2.88%, the fund’s standard deviation (a measure of volatility of returns) was 0.08% higher than that of the reference portfolio. The fund’s RealBeta™ was close to zero, which implies very little correlation of the fund’s returns to those of the broad-market equity ETF.

The following chart and accompanying statistics illustrate the constant reference ETF portfolio for the fund:

Reference Weights for TIAA-CREF Bond Fund (TIORX)

The fund had major equivalent positions in the Vanguard Mortgage-Backed Securities ETF (VMBS), SPDR® Barclays Intermediate Term Corporate Bond ETF (ITR), iShares Intermediate Credit Bond ETF (CIU), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), Schwab U.S. Aggregate Bond ETF™ (SCHZ), and PIMCO 0-5 Year High Yield Corporate Bond Index ETF (HYS). The Other component in the chart collectively represents additional six ETFs with smaller weights. (Some of the weights in the above table are shown as zero due to rounding.)

Under current management, the TIAA-CREF Bond Fund added practically no value on a truly risk-adjusted basis. An investor could have achieved similar results with a simple reference ETF portfolio comprising just six to nine fixed positions. The article provides a likely explanation

…[the lead manager] is quick to give credit to the 13 managers who run individual “sleeves” of the portfolio.

It appears that all the intense trading of the fund’s holdings (re: turnover in excess of 300%) merely compensated for its substantial management expenses.

To learn more about the TIAA-CREF Bond and other mutual funds, please register on our website.


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