Why You Can’t Judge A Fund By Its Cover

We think that this valuation methodology is weak and subjective. It is certainly not comparable across companies and gives little weight to the underlying health of the businesses it invests in. Let’s use an example from SAMVX’s own portfolio: its second largest holding Omnicare (OCR). This aforementioned methodology wouldn’t take into account the $877 million in deferred taxes that Omnicare (OCR) owes (10% of market cap).

As a result of senior claims on cash flows like these, OCR has a price to economic book value ratio (PEBV) of 3.6. In fact, SAMVX’s holdings have a weighted average PEBV of 3.7. This number implies that the market’s average expectation for the profits of this portfolio’s companies is for profits to increase by 370%. Does this sound like value investing to you?

So in Summary:

SAMVX has poor portfolio management relative to its benchmark and style and high total annual costs despite underperforming its benchmark. Its self-classified style is also misleading based on a brief look at its top 10 holdings and its “value” focus is simplistic and flawed. These conclusions are perfect examples of what just a little diligence can tell you about whether or not a fund’s name is backed up by its substance.

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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.