8
The average fund in the custom dividend-growth
sample edged the Russell
1000
Value in absolute
terms and posted positive alpha versus that bench-
mark, but its results deteriorated versus the Russell
1000
and even more so against Dividend Achievers
Select. The typical fund in the group lagged both
more-corelike bogies and showed negative alpha
when pitted against them. The typical sample fund
also posted weaker results against risk-adjusted
measures like the Sharpe ratio, the Sortino ratio,
and Morningstar Risk-Adjusted Returns versus
the Dividend Achievers benchmark.
That’s bad news for dividend-growth strategies that
are used to being compared to the Russell indexes,
but good news for investors trying to separate the
managers who are truly adding value from those
who employ more-mechanical and easily duplicated
approaches. In this test, Morningstar
500
denizens
Amana Income
AMANX
and
Vanguard Dividend
Growth
VDIGX
emerged as candidates for the
former group.
Columbia Dividend Income
LBSAX
came close.
Broad-based stock-picking success helped Vanguard
Dividend Growth and Amana Income. Neither port-
folio had any home runs, but rather a series of small
successes across industries during the period,
including
Nike
NKE
,
Bristol-Myers Squibb
BMY
,
and
Microsoft
MSFT
. Both funds did themselves
a favor by avoiding financials during the crisis—
Vanguard Dividend Growth by choice and Amana
Income by structure. As an Islamic fund, Amana can’t
own financials or debt-heavy firms. Both funds have
solid long-term strategies. Don Kilbride runs a more
compact, almost exclusively large-cap portfolio at
Vanguard, while Amana’s Nick Kaiser will hold more
stocks, including mid-caps.
Columbia Dividend Income lagged Dividend Achievers
in absolute terms but looked competitive on some
risk-adjusted measures. It had positive alpha and
matched the indexes’ Sortino and Sharpe ratios. Its
larger-than-average helping of wide-moat, or com-
petitively advantaged, companies compensated for
stakes in financials like Citigroup and
Lincoln
National
LNC
that hurt the fund during the period,
according to Morningstar attribution analysis. One of
the fund’s longtime managers retired, but remaining
Raising the Bar
Name
Return %
05/01/06
–03/31/14
Div Achiever
Alpha
05/01/2006
–03/31/04
Morningstar
Risk-Adj Ret %
05/01/06
–03/31/14
Sortino Ratio
05/01/06
–03/31/14
Std Dev
10/01/07
–03/31/14
Vanguard Dividend Growth
8.91
1.60
5.59
0.88
14.12
Amana Income
8.59
1.62
5.47
0.92
13.55
Columbia Dividend Income
7.61
0.18
3.38
0.72
14.81
Vanguard Dividend Apprec Idx
7.48
-0.13
4.01
0.70
14.93
ClearBridge Appreciation
7.40
0.02
3.19
0.71
14.90
T. Rowe Price Dividend Growth
7.36
-0.50
3.46
0.65
16.27
BlackRock Equity Dividend
6.89
-0.53
2.60
0.64
15.44
S&P 500 TR USD
6.88
-1.31
2.66
0.58
17.44
Fidelity Dividend Growth
6.86
-2.23
0.91
0.52
22.36
Franklin Rising Dividends
6.54
-0.95
2.24
0.60
15.25
Vanguard Growth & Income
5.90
-2.32
1.52
0.48
17.86
Fidelity Equity-Income
4.61
-3.98
-0.28
0.37
19.75
Fidelity Equity Dividend Income
4.22
-4.31
-0.50
0.34
19.36
With specialized dividend-oriented
index funds, we can see who’s really
adding value with dividend-growth
funds. As you can see, Vanguard Divi-
dend Appreciation Index has been
an even tougher benchmark than the
S&P 500. Not many funds have
outlegged it.
Finding the True Champions of Dividend Growth
Continued From Page 7
