by Will Ashworth | April 4, 2013 9:35 am
It’s rare these days when you come across information that feels fresh and alive. And concerning mutual fund management, we’ve heard it all before — passive beats active a majority of the time. So, it was with trepidation that I read NerdWallet’s latest study on the topic.
Specifically, NerdWallet says, active mutual fund managers over the past 10 years outperformed index funds just 24% of the time. That comes as no surprise when you factor in fees.
However, I found three of its findings particularly interesting:
With these findings in mind, let’s look at some of the actively managed funds that did manage to outperform the indices over the past decade. It shouldn’t come as a surprise that many of the winners in terms of absolute returns were invested in emerging markets.
Of the funds over $10 billion, Oppenheimer Developing Markets (MUTF:ODMAX) had the best average annual return at 15.5%. Since May 2007, it has been managed by Justin Leverenz, Oppenheimer’s Director of Emerging Market Equities.
Morningstar gives ODMAX a five-star rating for the three-year, five-year and 10-year periods ended Dec. 31, 2012. Among 358 diversified emerging market funds, it stands the tallest.
ODMAX’s three biggest contributors in the fourth quarter were all retail businesses. Retail might be ho-hum in North America at the moment, but it has been rocking in emerging markets.
While the T. Rowe Price Latin America Fund‘s (MUTF:PRLAX) volatility is greater than Oppenheimer’s, its annual return at 20.8% is also significantly higher. However, because of the additional volatility, it garners just three stars from Morningstar.
José Costa Buck has managed the fund since the beginning of 2009 and joined T. Rowe Price in October 2000. Brazil makes up 62% of the portfolio’s $1.7 billion in total net assets, though PRLAX’s largest holding as of the end of February is Carlos Slim’s America Movil (NYSE:AMX) in Mexico. Financials represent the largest sector weighting at 35.4%.
Participating in the $100 million to $1 billion category, the BlackRock Latin America Fund (MUTF:MDLTX) has $547.2 million in total net assets as of April 2 and is flat on the year. Over the past decade, however, average annual return was 22.1% with annualized volatility almost identical to the T. Rowe Price fund. Of the three funds mentioned so far, it has the highest expense ratio at 1.55%.
Also possessing a big representation from the financial sector at 26.6%, MDLTX’s largest holding is Brazilian mining giant Vale (NYSE:VALE) at a weighting of 7.9%. William Landers has managed the fund since 2002, which is a long time, and usually a good sign of ability. At the same time, it also means you need to diligently watch for his exit, which could cause a rash of redemptions.
Fidelity Asset Manager 85% (MUTF:FAMRX) is what Fidelity describes as a “target allocation” fund, providing investors with exposure to multiple asset classes in one individual fund.
The 85% in the name is the percentage allocated to equities, and the remaining 15% is invested in bonds. This particular target allocation fund is as high as you can go when it comes to stocks. As you ratchet down the risk, Fidelity increases the fixed-income component in the fund.
As a result of the fixed-income component, the 85% fund has an expense ratio of 0.82%, which is considerably less than the three previous funds. With lower risk often (but not always) comes lower returns. FAMRX is up 6.64% year-to-date, and during the past decade, it averaged an annual return of 8.8% — 390 basis points higher than its benchmark index. When you consider Microsoft (NASDAQ:MSFT) achieved a total annual return of 3.14% over those same 10 years, you can’t help but applaud its steady performance.
You probably haven’t heard of this fund. The Villere Balanced Fund (MUTF:VILLX) is run out of New Orleans by the Villere family, which has been a part of the Big Easy’s investment community since 1911. With net total assets of just $484 million, VILLX has a mandate to invest 60% to 70% of those funds in domestic stocks with a minimum market capitalization of $150 million and 30% to 40% of its assets in equity and fixed-income securities that generate sufficient income.
At the end of February, VILLX’s largest holding with a weighting of 4.07% was 3D Systems (NYSE:DDD). Primarily a growth investor, Villere’s portfolio is spread quite evenly between microcap, small-cap, midcap and large-cap stocks. Over the past decade, it has achieved an annual total return of 9.1% — 250 basis points higher than the benchmark index for balanced funds.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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