American Funds Bold Claim

I'll try to keep this post as short as possible but it seems doubtful. Earlier this year investors were regaled with ads from American Funds claiming: "A Group of Select Equity Funds Has, on Average, Consistently Beaten the Index"

Key words here are "group" and "consistently". I guess this implies that individually and for some periods they don't beat the index. After all kinds of vague charts and unspecified data, the last page of their pdf gets specific.

Seven American Funds are represented as a select group that can beat the index (VFINX).

	Symbol	Inception
Investment Company of America A	AIVSX	1/2/1934
American Mutual Fund A	AMRMX	2/21/1950
Washington Mutual Investors Fund A	AWSHX	7/31/1952
AMCAP Fund A	AMCPX	5/1/1967
The Growth Fund of America A	AGTHX	11/30/1973
Fundamental Investors A	ANCFX	8/1/1978
The New Economy Fund A	ANEFX	12/1/1983

Vanguard S&P 500 Investor Fund

VFINX

8/31/1976

Now lets acknowledge that these are great American mutual funds. The oldest fund here, the Investment Company of America goes back to 1934! Not sure what funds, if any, merged into AIVSX (or the others); but that would have a direct bearing on survivor bias and invest-ability.

I always wondered if any of the old funds have shareholder records going back to 30 years or more. I wonder what those old accounts actually look like today.

To test American's claim I took Yahoo's dataset, and compared the above funds. Caveat: I am comparing NAVs to NAVs, fees NOT included.  Is this fair? Well, both American and Vanguard have different fund classes with differing fees. American Fund A shares have some of the highest loads in the business, but then again, they are legacy funds. So to avoid the load penalty, I am using NAV for comparisons.

And these are the results:

VAMI RETURNS

VAMI Table:

AWSHX   $20,806.88

AGTHX   $22,019.03

ANCFX   $21,394.35

AIVSX    $14,844.63

AMRMX  $13,950.99

AMCPX   $12,828.53

ANEFX   $13,841.07

VFINX   $22,008.00

Only three funds, AWSHX, AGHX and ANCFX compare favorably to VFINX over the long term.  For shorter periods, nearly ALL the listed American Funds do well.

ROLLING RETURNS

Q32017
	VFINX	AWSHX	AGTHX	ANCFX	AIVSX	AMRMX	AMCPX	ANEFX
YTD	13.21%	12.14%	16.54%	14.56%	12.02%	11.34%	14.10%	24.17%
1-Year	16.93%	17.63%	18.11%	18.48%	15.05%	14.41%	15.83%	23.33%
3-Year	10.13%	9.39%	10.94%	10.88%	8.87%	9.09%	9.06%	10.79%
5-Year	13.15%	12.71%	14.10%	13.61%	12.89%	11.81%	13.64%	14.80%
7-Year	13.28%	12.85%	13.10%	12.76%	12.10%	11.71%	13.18%	13.50%
10-Year	7.06%	6.62%	7.09%	7.01%	6.35%	6.84%	7.70%	7.92%
15-Year	9.45%	9.06%	10.27%	10.67%	8.98%	8.97%	9.67%	11.43%
20-Year	6.67%	7.30%	9.05%	8.22%	7.42%	7.35%	8.46%	8.11%
30-Year	8.97%	8.95%	9.06%	9.23%	8.09%	7.80%	7.49%	7.81%

The above are 8 rolling period returns for VFINX and the 7 American Funds in this test. American Funds beat VFINX in 33 of the 63 periods shown.  American Funds beat the index 52% of the time.  Three funds, AGTHX, ANCFX and ANEFX beat 89% of the time periods tested.

CALENDAR YEAR RETURNS

My data spans 31 complete calendar years, 1986 to 2016, and 3Q2017 year-to-date. American Funds overall beat VFINX 40% of the calendar years.  The individual fund beats vary from a spectacular 53% for ANCFX to 44%-34% for the others.

RISK REWARD

3, 5 and 10 year standard deviations of annualized returns have the following results:

3-Year Standard Deviation: 2 of 7 American Funds beat VFINX
5-Year Standard Deviation: 1 of 7 American Fund beats VFINX
10-Year Standard Deviation: 3 of 7 American Funds beat VFINX

CONCLUSION

American Funds NAV generally, over shorter time frames, meet and one beats the returns of VFINX with slightly higher risk. American Funds bold claim is fair.

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

VTSAX v VFIAX

Here we go again, this time comparing two Vanguard index mutual funds, the Admiral Class Total Stock Market Fund, VTSAX versus Vanguard's Admiral Class S&P 500 Index Fund, VFIAX.

If you ever studied finance in B-school, or anywhere for that matter, portfolio theory was all about stocks versus bonds versus cash. Well, before the Vanguard Total Stock Market Investor Fund was created on 4/27/1992, nobody could ever buy the entire stock market asset class. Since then, you can. Same with bonds and you always had cash.

Both funds come in Admiral and Investor Class shares as well as institutional classes, as do other Vanguard index funds. We are going to compare the Admiral classes this time. But, fyi, key differences are: Admiral shares have a later inception date of 11/13/2000, a $10,000 minimum investment and 0.04% expense ratio versus much earlier inception dates, $3,000 minimum and 0.15% expense ratio for Investor shares.

Since they are both Vanguard funds we can get the numbers directly from Vanguard. Here they are:

Annualized Returns (reported by Vanguard as of 9/30/2017)

                             VTSAX       VFIAX
Quarter-end             4.54%         4.48%
Year-to-date           13.95%       14.20%
1-Year                    18.63%       18.57%
3-Year                    10.69%       10.78%
5-Year                    14.18%       14.18%
10-Year                    7.69%         7.43%
Since Inception        6.41%         5.81%

Dividend Yield         1.84%         1.93%

3-Year Std. Dev.     10.32%       10.13%
Sharpe Ratio               .84              .90

Top 10 Stocks are the same for both funds.
Total # Stocks          3607             512
Top 10 Stocks*          17%           20.5%
AUM**                   $174.5B     $212.6B

I computed the correlation of daily returns since inception to be an indistinguishable 99.6%.

Ok, so whats the difference between these two funds?

-Not much, with little that matters to investors.
-VTSAX includes the small stocks not in the S&P 500.
-Small stocks are more volatile than large stocks.
-Small stocks have lower dividends than large stocks.
-Small stocks have sometimes higher returns than large stocks.
-All three effects account for the slight differences in fund performance.
-The Total Stock Market Index is arguably more academically correct in that portfolio theory likes to own the whole market and not pick winners and losers.

* Top 10 Stocks as percentage of AUM
**AUM = Assets Under Management

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and while prepared with care, may be subject to omissions and errors.

VFINX Data Test: Yahoo vs Vanguard

Before going any further with index to fund comparisons, we must know just how good IS Yahoo historical price data?

Lets set the scene:

-The idea is to compare historical VFINX data from Yahoo and Vanguard.
-Return calculations must include effects of distributions (dividends, capital gains) and stock splits.
-Yahoo provides Net Asset Value (NAV) closing prices, dividend data and "adjusted closing" prices, adjusted by split and dividend multipliers. Thank you Yahoo. Without these we could not do valid return calculations.
-Vanguard does NOT provide adjusted closing prices for their mutual funds. Vanguard also only provides ten years of distribution data, not a complete set.
-We are left with closes as the only "raw" head-to-head price comparison of Vanguard and Yahoo.
-Yahoo provides dividends for its entire dataset but Vanguard provides only 10 years of dividends.

Taking the price and dividend download of VFINX from Vanguard and matching it against the Yahoo download, we have the following results for the "closing price" series:

Date of downloads: 10/1/2017
Yahoo database start date: 1/2/1980
Vanguard database start date: 8/31/1976

Number of days in Vanguard data: 10,366
Number of days in Yahoo data: 9,525

Number of date errors: 3
Number of Yahoo price errors: 124 out of 9,525 prices (121 excluding missing dates).

Vanguard database dividends reported: 40
Yahoo database dividends reported: 154
Number of reported date errors: 0
Number of reported dividend errors: 0

Here are ALL the errors found in Yahoo's VFINX closing price data.

Due to rounding, most of these are not even errors!

CONCLUSION:  YAHOO DATA IS RELIABLE!


Notes:
-While the VFINX inception date is 8/31/1976, Yahoo only provides data since 1/2/1980.
-Yahoo data is missing for 10/30,2012, 10/29/2012 and 1/2/2007.
-I did not check Vanguard dates, which appear to be complete.
-Vanguard's website only shows dividends for ten years total. This download has a start date of 12/21/07.
-Yahoo data includes all dividends since 1/2/1980.
-Prices were rounded to two decimal places.

Even after this conclusion we have one more step to go: using the available Vanguard dividend data, compare Yahoo's adjusted close to Vanguard's "adjusted" close (called "reinvest price" by Vanguard) For all available dividend dates posted by Vanguard, Yahoo is the same!

Vanguard fun facts: Vanguard has the following S&P 500 Index Fund classes:

Class, Symbol, Inception date, Expense Ratio, Minimum Investment, Assets Under Management

Investor, VFINX, 8/31/1976, 0.14%, $3000, $27.3 Billion
Admiral, VFIAX, 11/13/2000, 0.04%, $10,000, $212.6 Billion
Institutional, VINIX, 7/7/1997, 0.035%, $5 Million, $134.2 Billion
Institutional Plus, VIIIX, 7/7/1997, 0.02%, $100.0 Million, $93.2 Billion
Institutional Select, VFFSX, 6/24/2016, 0.01%, $5.0 Billion, $29.6 Billion
ETF, VOO, 9/7/2010, 0.04%, 1 share, $71.8 Billion

As expenses differ, each class will have its own price series.

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and while prepared with care, may be subject to omissions and errors.