A recent piece in Barron’s profiles the Victory Sycamore Established Value Fund (VETAX, Class A Shares; Class I, R and Y Shares are available only to select investors). This $2.6 billion mid-cap value fund has a 5.75% maximum sales charge, 1.04% expense ratio and 51% turnover. According to the article

…the fund’s 11.5% return over the past 12 months trounces the S&P’s 6.8%, and puts it at the very top of its category, which has returned an average of 1.9%. But Established Value also has had outstanding performance throughout [its manager’s] entire tenure, beating 98% of its peers over 10 years, and 80% over 15.

The prospectus benchmark for the fund is the Russell Midcap® Value Index. One of the long-lived implementations of this index is the iShares Russell Mid-Cap Value ETF (IWS). Alpholio™’s calculations indicate that since 2004 the fund returned more than the ETF in about 56% of all rolling 36-month periods, 49% of 24-month periods, and 50% of 12-month periods.

Let’s take a closer at the performance of Victory Sycamore Established Value by applying a variant of Alpholio™’s patented methodology. In this approach, a dynamic reference portfolio of ETFs is constructed to closely mimic the fund’s returns. The portfolio has a fixed ETF membership but variable weights. Here is the resulting chart of cumulative RealAlpha™ for the fund:

Cumulative RealAlpha™ for Victory Sycamore Established Value Fund (VETAX)

Over the last eleven years, the fund generated around 1.4% of regular and 1.8% of lag annualized annualized RealAlpha™ (to learn more about RealAlpha™, please visit our FAQ). However, most of that RealAlpha™ was produced in just two short periods: from 2008 to 2009 and from mid-2014 to present; otherwise, the cumulative RealAlpha™ curve was largely flat. At 15.5%, the fund’s standard deviation was approximately 0.5% higher than that of the reference ETF portfolio. The fund’s RealBeta™, measured against a broad market ETF, was 1.00.

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

Reference Weights for Victory Sycamore Established Value Fund (VETAX)

The fund had top equivalent positions in the iShares S&P Mid-Cap 400 Value ETF (IJJ; average weight of 24.1%), Vanguard Mid-Cap ETF (VO; 21.1%), iShares Morningstar Mid-Cap ETF (JKG; 9.7%), PowerShares Dynamic Market Portfolio (PWC; 9.0%), Vanguard Industrials ETF (VIS; 8.7%), and Vanguard Energy ETF (VDE; 6.0%).

The Other component in the chart collectively represents additional six ETFs with smaller average weights. Of those, the iShares 1-3 Year Treasury Bond ETF (SHY; 5.6%) approximated cash and short-term investments of the fund.

While the Victory Sycamore Established Value Fund added a decent amount of value on a truly risk-adjusted basis, it did so in just two spurts in its recent history. In some years, the fund had significant distributions (e.g. over 14% of NAV in 2014), which made it less suitable for taxable accounts. A steep front load detracts from the fund’s appeal. Most recent data show that, when considering multi-year intervals, it took the fund ten years to beat its benchmark (8.65% vs. 7.42% annualized return) when the maximum sales charge was applied.

To learn more about the Victory Sycamore Established Value and other mutual funds, please register on our website.

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