2
29%
to
51%
for the other quintiles. In addition, pre-
expense returns of the funds that survived the ensuing
period were a little lower for the lowest-bloat funds
and highest for the highest-bloat funds. Likewise,
the subsequent Morningstar Rating over the next five
years was a bit lower for low bloat than high-
bloat funds.
However, in the next five-year period, the bloat ratio
performed quite well. The lowest-bloat funds re-
turned
3
.
6%
annualized, a figure that topped all the
other groups. In addition, the success rate was
57%
while all the other quintiles were in the
30%
–
40%
range. In addition, the ensuing five-year star rating
was best for low-bloat and worst for high-bloat funds.
Why did it work in the more recent period but not
the earlier one? I’m not sure. Maybe the safe conclu-
sion is that it’s modestly helpful but not strong enough
to work over every period.The first time period didn’t
have a down market and the second one did. Maybe
there’s some link, but I can’t be sure.
Which Funds Have Maximum Flexibility?
Some Morningstar
500
funds have very low bloat
ratios. That means they have room to grow.
Westport
WPFRX
has a Morningstar Analyst Rating
of Gold and a bloat ratio of just
0
.
0037
, placing it
in the lowest
10%
of its category. With a
1%
turnover
rate and $
652
million in assets, it’s easy to see why.
It’s run by the patient Ed Nicklin, who looks for cheap
stocks but will keep holding as their multiples grow.
Nicklin’s emphasis on cheap, high-quality names gives
the fund an appealing defensive quality.
Vanguard Explorer Value
VEVFX
is a small fund—
$
271
million with three subadvisors. Its
0
.
09%
bloat
ratio is in the lowest third of its category. The sub-
advisor split means the fund isn’t going to have any
big positions and thus has the benefit of a lot of flex-
ibility. It also boasts a low
0
.
60%
expense ratio and
a
4
-star rating. We don’t have an Analyst Rating on it.
The fund is promising, though its bloat ratio is a bit
deceptive as the three subadvisors run similar small-
cap strategies on their own. That means they are
having a bigger impact on stock prices than would be
apparent from this small fund alone.
FPA Perennial
FPPFX
switched to no-load last year,
and it’s worth a close look. Its
0
.
02%
bloat ratio ranks
in the lowest
26%
of the category. This Gold-rated
fund has enjoyed strong performance under Eric Ende
and Steve Geist, yet the load and a lack of salesforce
kept assets at just $
311
million. Along with recently
added comanager Greg Herr, the managers tend to
build positions slowly and thus trading costs low. They
look for companies with a high return on capital and
low debt. That makes this one of the tamer mid-
growth funds.
Auxier Focus
AUXFX
is another small, patient fund.
The fund’s
0
.
005%
bloat ratio is in the large-value
category’s lowest
30%
. Jeff Auxier employs a Buffett-
influenced strategy in which he seeks companies
with wide moats and modest prices. He tends to hold
a slug of cash for rainy days. Lately the fund has
been lagging in the market’s rapid ascent, but it’s
always a good bet in a downturn.
FAM Value
FAMVX
is another fund that earns its
keep in down years. The value proposition is that you
get near-market returns with below-market risk. The
fund lost
8
percentage points less than the S
&
P
500
in
2008
and
2
.
5
percentage points less in
2001
. The
fund’s $
940
million asset base and single-digit turn-
over rate give it a bloat ratio of
0
.
05%
, which is in
the bottom
40%
of its peer group.
Which Lack Flexibility?
Many of the funds with the largest bloat ratios are no
surprise as they have huge asset bases. Funds like
Fidelity Contrafund
FCNTX
and
American Funds
Growth Fund of America
AGTHX
have very high
bloat ratios—something that’s already factored into
the Analyst Rating for the funds. Others like the
frenetic
CGM Focus
CGMFX
are no surprise, either.
How Bloated Is Your Fund?
Continued From Cover
