(PUB) Investing 2016

486 / 708

4
Let’s start by dismissing the Bridgeway part of the story.
The fund focuses on a micro-cap slice of the market
as represented by the smallest decile of the CRSP 10
Index. With a tiny average market cap of just $150
million, the fund’s performance relative to peers is prim-
arily about micro-caps versus small caps. As the
record shows, micro-caps can behave rather differently
than small caps.
The two Vanguard passive funds differ in two key ways.
They follow different indexes, and the tax-managed
fund will vary from its benchmark a little more in order
to harvest tax losses and minimize fundholders’ tax
bills. But their annualized returns are nearly 2 percentage
points apart, mainly because the tax-managed fund’s
index skews much smaller, giving that fund an average
market cap of $1.5 billion versus $3 billion for
Vanguard Small Cap Index. Now it all starts to make
sense. Much of the trailing period, especially the
first bear market, favored smaller stocks. I’m not sure
we learned much about active versus passive, but
it’s clear that small was mighty.
As for our top two small-blend funds, Royce Total
Return RYTRX is another Chuck Royce-comanaged fund
that has been a bit sluggish of late, though not nearly
as bad as Royce Premier. The fund’s dividend focus has
worked nicely over the long run even though there
have been bumps.
Berwyn BERWX has had great success because of
good stock selection and a bias toward micro-caps.
Small Value
Small-value funds fared well against the index. Look
at its record in a rally and you might not be impressed
by Royce Special Equity RYSEX , but it had the best
Sortino ratio. Charlie Dreifus’ fund has been a champ
through two market cycles. The devil is in the details,
and Dreifus learns quite a lot about a company by diving
through the minutiae of its accounting. He steers
the fund to good companies with healthy balance sheets,
and, when you factor in bear markets, the fund is
a champ.
AllianzGI NFJ Small-Cap Value PCVAX places a great
value on dividends, and that has worked quite nicely
over the long haul; it has the second-best Sortino ratio.
The fund is currently closed, but redemptions might
pry the door open to new investors once more. K
The Story of Two Bears and Two Bulls
Continued From Page 3
Small-Growth Funds Over 2 Full Market Cycles
Name Ticker
Morningstar
Analyst
Rating
Sortino Ratio
03/01/00
to 09/30/16
Return %
03/01/00 to
09/30/16
Manager
Tenure
(Longest),Years
Neuberger Berman Genesis NBGNX ´ 1.04 11.41 22.67
Royce Premier RYPRX ´ 0.86 10.34 24.83
Wasatch Core Growth WGROX Π0.85 11.29 15.83
Century Small Cap Select CSMVX — 0.83 9.99 16.83
Wasatch Small Cap Growth WAAEX Π0.63 8.14 29.83
William Blair Small Cap Growth WBSNX — 0.60 8.58 16.83
LKCM Small Cap Equity LKSCX • 0.59 7.55 22.25
Brown Capital Mgmt Small Co BCSIX Π0.56 7.76 24.25
Baron Small Cap BSCFX ´ 0.52 6.97 19.08
Vanguard Small Cap Growth Index VSGAX • 0.51 7.08 11.83
Vanguard Explorer VEXPX ˇ 0.44 5.97 22.67
Large-Value Funds Over 2 Full Market Cycles
Name Ticker
Morningstar
Analyst
Rating
Sortino Ratio
03/01/00
to 09/30/16
Return %
03/01/00 to
09/30/16
Manager
Tenure
(Longest),Years
American Century Equity Income TWEIX • 1.20 9.53 21.83
American Century Value TWVLX • 0.89 9.21 23.08
Auxier Focus AUXFX — 0.83 7.17 17.25
Fairholme FAIRX ˇ 0.82 10.34 16.83
Dodge & Cox Stock DODGX Π0.73 8.95 24.75
American Beacon Lg Cap Value AAGPX ´ 0.68 8.01 29.25
American Funds Washington Mutual AWSHX Π0.67 7.27 19.25
Sound Shore Investor SSHFX • 0.67 7.88 31.42
Invesco Comstock ACSTX • 0.66 8.01 17.17
Invesco Growth and Income ACGIX ˇ 0.62 7.01 17.42
Vanguard Value Index VVIAX • 0.51 6.21 21.83
Torray TORYX 0.42 5.11 25.83