436 / 772
2
For these measures, the bloat ratio would seem to
have some useful predictive power, though I would
not put it on par with the expense ratio.
It had less predictive power for alpha among
small caps.
For mid-caps, the least-bloated decile slightly outper-
formed the most-bloated decile, but the impact was
quite small. For large caps, no impact was apparent.
This makes sense as there is much less liquidity in
small caps than in mid-caps and large caps. A fund
would have to get enormous for bloat to be a
big problem in large caps. More commonly, we see
asset bloat become a modest handicap to which
a manager may adjust by moving up in market cap
and dialing down turnover. That can still be a
negative, and you never want to see a manager alter
his style to deal with asset bloat, but clearly the
impact is generally small.
Biggest Increases in Bloat Ratio
Let’s look at some of the large changes in bloat ratio,
beginning with those where it went up.
By far the largest boost came at
Meridian Growth
MERDX
, where bloat rose to
3
.
034
in March
2015
from
0
.
976
in December
2013
, ranking in the top
5%
of small-growth bloat ratios. The leap was due to
the portfolio overhaul instituted by Arrowpoint’s Chad
Meade and Brian Schaub. The pair likes to run a
focused portfolio, as this jump has made clear. The
good news is that Meade and Schaub vow to close
the fund well before it reaches the peak that their pre-
vious fund,
Janus Triton
JATTX
, did. As the bloat
ratio indicates, this is a strategy that is sensitive to
size. In fact,
Janus Venture
JAVTX
had a
4
.
8
bloat
ratio when they left, so they haven’t yet come close
to the extreme position they were in before.
Longleaf Partners Small-Cap
LLSCX
is a different
case. Its bloat ratio rose to
4
.
48
, or top
2%
of the cate-
gory, from
2
.
95
despite the fact that it has been
closed for many years and has even been in outflows.
In this case, the rise was spurred by a rally in top
holdings like
Graham Holdings
GHC
,
Level 3 Commu-
When Funds Get Bloated
Continued From Cover
Large Caps Over All Time Periods
Bloat Ratio
Decile
Average
Bloat Ratio
Success
Ratio
Average 5-Yr
Gross Return
Average
5-Yr Alpha
Average 5-Yr
Info Ratio
Average 5-Yr
Rating
1
0.0030
36.89
9.38
0.24
0.09
2.97
2
0.0077
37.70
9.31
0.25
0.06
3.00
3
0.0125
38.28
9.14
0.39
0.09
2.87
4
0.0189
41.12
8.93
0.55
0.10
2.91
5
0.0288
42.67
8.96
0.45
0.09
2.98
6
0.0447
41.72
8.52
0.58
0.09
2.92
7
0.0684
43.46
9.05
0.89
0.13
2.97
8
0.1192
45.54
9.13
0.58
0.09
2.94
9
0.2272
45.07
8.79
0.39
0.07
2.75
10
1.0120
44.64
8.34
0.22
0.02
2.72
Mid-Caps Over All Time Periods
Bloat Ratio
Decile
Average
Bloat Ratio
Success
Ratio
Average 5-Yr
Gross Return
Average
5-Yr Alpha
Average 5-Yr
Info Ratio
Average 5-Yr
Rating
1
0.0165
41.96
10.75
1.72
0.34
3.00
2
0.0429
44.34
11.05
2.05
0.38
3.01
3
0.0717
37.38
11.46
2.05
0.39
3.08
4
0.1051
37.74
10.70
2.29
0.35
2.99
5
0.1516
38.46
10.86
1.84
0.33
2.94
6
0.2176
42.59
10.63
1.83
0.28
2.86
7
0.3094
37.50
10.30
1.62
0.29
2.99
8
0.4571
44.34
10.55
1.82
0.29
2.96
9
0.7890
46.73
10.25
1.75
0.28
2.86
10
1.9489
38.61
9.36
1.36
0.23
2.79
Small Caps Over All Time Periods
Bloat Ratio
Decile
Average
Bloat Ratio
Success
Ratio
Average 5-Yr
Gross Return
Average
5-Yr Alpha
Average 5-Yr
Info Ratio
Average 5-Yr
Rating
1
0.0573
43.08
11.51
1.52
0.31
3.04
2
0.1222
33.86
11.43
1.57
0.30
2.93
3
0.1803
40.65
11.69
1.86
0.33
3.14
4
0.2493
36.51
10.35
1.66
0.26
2.81
5
0.3395
42.86
11.04
1.83
0.29
2.92
6
0.4502
41.46
11.38
1.81
0.31
2.91
7
0.6135
55.91
10.87
2.19
0.33
3.05
8
0.8442
42.40
10.99
1.43
0.26
2.85
9
1.3586
35.77
9.92
1.52
0.21
2.70
10
3.2768
35.00
10.04
1.64
0.23
2.69
Bloat/Alpha-Info Ratio Study—Bloat Ratio Deciles with subsequent 5-Yr Return, 5-Yr Alpha, 5-Yr Info Ratio, 5-Yr Rating, and Success
Ratio—All data through year-end 2014. 5-Yr Return, Alpha, and Information Ratio based on Gross Returns—Alpha and Info Ratio
use Morningstar Category Benchmark Index. Exclusions—bloat ratio over 100, funds with assets less than $100 million—Funds
had to be around the entire year to be included. 5-Yr ranks based on beginning time period category. Data through 12/31/2014.
How Bloat Works in Small, Mid-, and Large Caps