Why You Can’t Judge A Fund By Its Cover


This week we’re putting RidgeWorth Mid Cap Value Fund (SAMVX), which has $4.6 billion in assets under management, in the Danger Zone for a number of reasons:

  1. Poor stock picking
  2. Very high total annual costs with high front end load and transaction costs
  3. A misleading “Mid Cap Value” tagline
  4. A “value” designation despite investing in heavily overvalued companies

As a result of its poor portfolio and high costs, SAMVX earns our Very Dangerous rating. SAMVX is a perfect example of why investors need to do their own diligence on the funds they allocate to. We think that SAMVX wouldn’t be nearly as large if more investors knew what was going on under of the cover of this fund.

Bad Stock Picking No Matter How You Spin It

We rate each of the ETFs and mutual funds under our coverage based on the quality of stocks they hold. SAMVX gets our Dangerous Portfolio Management rating primarily because 46% of SAMVX’s holdings earn our Dangerous or Very Dangerous ratings while only 16% of SAMVX’s holdings are allocated to Attractive or Very Attractive stocks.

Compare these holdings to those of SAMVX’s benchmark, the iShares Core U.S. Value ETF (IUSV). We rate only 39% of IUSV’s holdings as Dangerous or Very Dangerous, while almost 20% of its holdings earn Attractive or Very Attractive ratings.

Figure 1: Rising GAAP Net Income Masks Declining Profitability


Sources:   New Constructs, LLC and company filings.

Don’t Be Fooled by the Low Expense Ratio

Investors would have a right to expect mediocre stock picking from SAMVX if it were a cheap fund. However, this isn’t the case.

Despite the fund’s stated expense ratio of 1.59%, SAMVX actually has Very Dangerous total annual costs of 4.02%. The reason for these high costs is SAMVX’s high front end load of 5.75% and its high transaction costs of 0.23%. The reason for these transaction costs is the fund’s high turnover rate of 108%.

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Disclosure: New Constructs staff receive no compensation to write about any specific stock, sector, or theme.

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Anastasija Janevska 5 years ago Member's comment

Excellent post.