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.
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.