|
Analysis: Like other funds managed by Jim O’Shaughnessy, this U.S. Small / Mid Cap Fund is managed using the same quantitatively driven strategy which looks for certain characteristics which have been shown to drive excess returns over time. These characteristics include such things as trading volume, low price to sales ratios and increasing earnings and share prices. The manager rates and ranks the investment universe based on these criteria and then picks the top 50 ranked stocks and which are then added into the portfolio. This process is run a number of times per year.
From the fund’s launch in 1997 until mid 2007 the fund handily outpaced the Russell 2000 benchmark and most of its peer group, posting returns that were consistently in the top quartile. However when the first hint of the global credit crisis hit in the summer of 2007, the rails really fell off this fund. Between June 2007 and February 2009 the fund plummeted by more than 66%, a drop from which the fund has yet to recover. Performance has also been very volatile. The fund has a monthly standard deviation of 8.05% in the past five years, which is more than twice the standard deviation of the S&P 500 Index.
While there may be periods of time where this fund outperforms its peer group, it is our opinion that there is far too much risk involved with the fund, and that there are better choices available to investors in the U.S. Small and Mid Cap category.