A recent piece in Barron’s profiles the VanEck Emerging Markets Fund (GBFAX; Class A shares). This $2.2 billion emerging markets fund has a 5.75% maximum sales charge, 1.53% expense ratio and 36% turnover. According to the article
Over the past 15 years, the fund has returned an average of 13.5% annually, putting it in the top quartile of its Morningstar category.
The prospectus benchmark for the fund is the MSCI Emerging Markets Investment Market Index (MSCI EM IMI). One of the accessible implementations of this index is the iShares Core MSCI Emerging Markets ETF (IEMG). Alpholio™ calculations show that from inception of the ETF through 2017, the fund returned more than the ETF in only 44% of all rolling 36-month periods, 44% of 24-month periods, and 59% of 12-month periods. The median cumulative (not annualized) return of the fund relative to the ETF over a rolling 36-month period was a negative 0.03%.
The rolling returns comparison is useful in determining the relative performance of a fund over typical holding periods that are not necessarily aligned with calendar years. However, such a comparison does not take into account the fund’s volatility or exposures. To gain that insight, let’s employ the Alpholio™ patented methodology. In its simplest variant, it constructs a fixed-membership fixed-weight reference ETF portfolio that most closely tracks periodic returns of the analyzed fund.
To make implementation practical, in this analysis the number of ETFs in the reference portfolio was limited to six. Here is the resulting chart of cumulative RealAlpha™ for VanEck Emerging Markets over the past ten years (please consult the FAQ to learn more about this and other performance measures):
The fund failed to add a significant value over its reference portfolio, which also had a lower volatility.
Here is the constant-weight composition of the reference ETF portfolio over the same period:
The fund had equivalent positions in the iShares MSCI BRIC ETF (BKF), iShares MSCI Hong Kong ETF (EWH), WisdomTree Emerging Markets SmallCap Dividend Fund (DGS), Guggenheim MSCI Global Timber ETF (CUT), iShares MSCI Singapore ETF (EWS), and VanEck Vectors Russia ETF (RSX). These positions represented average exposures of the fund over the evaluation period.
The following chart with statistics shows how the fund performed against its benchmark ETF (since its inception) in the capital asset pricing model (CAPM):
Although alpha in this model was considerable, it was not statistically significant (T-statistic of less than two). In addition, the R-squared of around 0.78 indicated that IEMG in this single-factor model was a sub-optimal fit for the fund.
In sum, the VanEck Emerging Markets Fund did not substantially outperform a simple fixed-weight portfolio of ETFs. The steep front load further diminished the fund’s appeal. Over the past five years, the fund only had small dividend income distributions, which made it suitable for taxable accounts.
To learn more about the VanEck Emerging Markets and other mutual funds, please register on our website.