Why You Can’t Judge A Fund By Its Cover

What do these high costs mean? Consider that IUSV has total annual costs of just 0.10%. To justify the additional costs above its benchmark, SAMVX must outperform IUSV by 3.92% annually over three years. What’s concerning is that this outperformance hasn’t happened. Over the past three years, IUSV has delivered an 18% annualized return while SAMVX has delivered just a 16% annualized return. In addition, any outperformance going forward doesn’t look likely due to SAMVX’s inferior stocks relative to IUSV.

In short, investors are paying higher fees for inferior performance.

What Style Are Investors Getting in SAMVX? (Hint: It’s Not Mid Cap Value)

SAMVX bills itself as a “Mid Cap Value” fund. If you look closer though, SAMVX more closely resembles an All Cap Value fund with a blend of large and small cap stocks mixed in with the mid caps.

For example, SAMVX’s top equity holding is SanDisk (SNDK), a $14 billion company. Its fifth largest holding is NetApp (NTAP), an $11 billion company, and its seventh largest holding is the $17 billion Hartford Financial Services Group (HIG). You know how the saying goes: never judge a book by its cover.

A look at SAMVX’s Morningstar page would not help either, as Morningstar does not actually include the “All Cap” designation. Rather, the firm averages SAMVX’s holdings’ market caps, which yields a “Mid Cap Blend” classification — which is clearly inaccurate based on the market cap of some of SAMVX’s top holdings above.

No matter SAMVX’s actual style, both the Mid Cap Value and All Cap Value styles earn a Neutral rating in our 2Q15 Style Ratings report. It’s disappointing that SAMVX cannot earn at least a Neutral portfolio management rating despite selecting from so many large cap stocks outside of its supposed “Mid Cap Value” constraints.

About That “Value” Focus…

Last on our list of concerns with SAMVX is the fund’s misleading “value” investing style. For more on SAMVX’s selection methodology, we’ll turn to the fund’s prospectus, which states that the fund intends to “key in on those companies that are in the lower third of their own historical valuations.

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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.