Administration June 4, 2005

S&P: Concentrated Mutual Funds Outperform Non-Concentrated

April 30, 2003 (PLANSPONSOR.com) - Over the previous 10 years, concentrated mutual funds have outperformed their non-concentrated counterparts within almost all categories of domestic equity mutual funds.
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The average 10-year annualized return for the concentrated funds (9.29%) was greater than that of non-concentrated funds (8.31%).   Moreover, most of the concentrated funds in each category performed better than the average of all funds in each category, regardless of their concentration, according to a Standard & Poor’s (S&P) analysis.

To arrive at a list of concentrated portfolios, S&P sought out funds where the top 10 holdings accounted for at least 30% of the fund’s total assets.   This resulted in 140 funds spread out over nine investment style categories.

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Of the nine concentrated domestic fund style categories, small-blend did the best, returning 13.98% versus a 9.90% in the non-concentrated variety.   This performance was followed by small-cap value returning 11.02% and mid-cap blend returning 10.06.   Both of these funds bested their non-concentrated peers, which returned 9.91% and 8.81%, respectively.   Other top returnees and their corresponding non-concentrated funds:

  • Small-cap growth: 9.18% versus 7.27%
  • Large-cap value: 8.82% versus 7.86%
  • Large-cap blend: 8.14% versus 7.54%
  • Large-cap growth: 7.52% versus 7.03%

The other two categories, mid-cap value and mid-cap growth, returned 8.96% and 5.93%, respectively, over the 10 year period.   By comparison, their non-concentrated correlations returned 9.26% and 7.23%, respectively.

Although concentrated funds tend to be more volatile than non-concentrated funds, the average risk-adjusted return for the concentrated funds in almost all categories (except mid-cap value and mid-cap growth) was better than the non-concentrated funds.   Some of the concentrated mutual funds determined by S&P to have particularly strong absolute and risk adjust returns over the past 10 years were:

  • Clipper Fund
  • Torray Fund
  • Smith Barney Aggressive Growth Fund/Z
  • Heritage Capital Appreciation Trust/A
  • First Eagle Fund of America/Y
  • Ariel Fund
  • Wasatch Funds: Small Cap Growth Fund (WAAEX).

For the purposes of its study, S&P’s online Web service, Fund Advisor, focused on mutual funds having at least $50 million in net assets, at least 10 years of operating history, and management tenure of greater than five years.

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