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Successful Concentrated Funds

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Have concentrated portfolios performed better than non-concentrated funds over the long term? The results of a screen we ran show that for almost all categories within the domestic equity universe, concentrated funds have indeed outperformed their non-concentrated counterparts over the past decade.

For the purposes of our screen, we focused on funds having at least $50 million in net assets, at least 10 years of operating history and management tenure of greater than five years (as of March 31, 2003). These criteria yielded a total of 397 mutual funds. To further narrow the list to exclusively concentrated portfolios, we sought out funds where the top ten holdings accounted for at least 30% of total assets — resulting in 140 funds spread out over all nine investment style categories.

On average, for almost all style categories, the ten-year annualized return as of March 31, 2003, for the concentrated funds was greater than for non-concentrated funds (the two exceptions were mid-cap value and mid-cap growth categories.) Moreover, most of the concentrated funds in each category performed better than the average of all funds in each category, regardless of their concentration.

Although concentrated funds tend to be more volatile than non-concentrated funds, the results of our screen suggest that concentrated funds provide better reward relative to the risk they incur. The average risk-adjusted return for the concentrated funds in almost all categories (except mid-cap value and mid-cap growth) was better than the non-concentrated funds. The table below summarizes the results:

Number of Funds*

TotalConcentrated FundsNon-Concentrated Funds

  • Large-Cap Blend721953
  • Large-Cap Value1034162
  • Large-Cap Growth874641
  • Mid-Cap Blend1239
  • Mid-Cap Value18810
  • Mid-Cap Growth29623
  • Small-Cap Blend11110
  • Small-Cap Value31625
  • Small-Cap Growth341024
  • Large-Cap Blend7.698.147.54
  • Large-Cap Value8.248.827.86
  • Large-Cap Growth7.297.527.03
  • Mid-Cap Blend9.1310.068.81
  • Mid-Cap Value9.138.969.26
  • Mid-Cap Growth6.965.937.23
  • Small-Cap Blend10.2713.989.90
  • Small-Cap Value10.1311.029.91
  • Small-Cap Growth7.839.187.27

10-Year Sharpe Ratio

  • Large-Cap Blend0.200.230.19
  • Large-Cap Value0.250.270.24
  • Large-Cap Growth0.150.160.14
  • Mid-Cap Blend0.280.380.24
  • Mid-Cap Value0.330.290.35
  • Mid-Cap Growth0.110.070.12
  • Small-Cap Blend0.320.470.31
  • Small-Cap Value0.370.400.36
  • Small-Cap Growth0.130.180.11

*Funds with at least 10 years of operating history, more than $50 million in assets, and portfolio managers with tenure greater than five years.

Here is a list of the five best concentrated funds based on their ten-year annualized total returns as of the end of the first quarter for each style category. (Note: The Small-Cap Blend and Mid-Cap Blend categories each have less than five concentrated funds). Three Standard & Poor’s ‘Select Funds’ were represented on the list.

Fund10-Year Annualized Return (%)10-Year Sharpe Ratio10-Year S&P Star Ranking

Large-Cap Blend

  • Mairs & Power Growth Fund (MPGFX) 15.00.85
  • Thompson Plumb Growth Fund (THPGX) 12.80.55
  • Victory Funds:Diversified Stock Fund/A (SRVEX) 10.20.35 (SELECT FUND)
  • Brandywine Blue Fund (BLUEX) 9.90.35
  • Mosaic Equity Trust Investors Fund (MINVX) 9.30.35

Large-Cap Value

  • Sequoia Fund (SEQUX) 14.10.65
  • Clipper Fund (CFIMX) 13.50.75
  • Weitz Series Fund:Value Portfolio (WVALX) 13.10.65
  • Torray Fund (TORYX) 11.80.45
  • Vontobel US Value Fund (VUSVX) 11.60.55

Large-Cap Growth

  • Smith Barney Aggressive Growth Fund/Z15.20.55
  • Heritage Capital Appreciation Trust/A (HRCPX) 10.20.35 (SELECT FUND)
  • Enterprise Grp Growth Fund/A (ENGRX) 10.20.45
  • Van Kampen Exchange Fund (ACEHX) 9.90.35
  • Dreyfus Appreciation Fund (DGAGX) 9.50.45

Mid-Cap Blend

  • First Eagle Fund of America/Y (FEAFX) 13.30.65
  • Yacktman Fund (YACKX) 9.30.33
  • Wayne Hummer Growth (WHGRX) 7.60.23

Mid-Cap Value

  • Longleaf Partners Fund (LLPFX) 13.10.65
  • Gabelli Value/A (GABVX) 12.00.44
  • FMI Common Stock Fund (FMIMX) 10.50.43
  • Fenimore Asset Management Trust Value Fund (FAMVX) 9.70.43
  • Franklin Managed Tr:Rising Dividends Fund/A (FRDPX) 8.90.33

Mid-Cap Growth

  • Brandywine Fund (BRWIX) 8.70.24
  • Security:Mid Cap Growth Fund/A (SECUX)8.40.23
  • Selected Special Shares (SLSSX) 6.30.13
  • American Century Vista/Inv (TWCVX) 5.70.03
  • SAFECO Northwest Fund/Inv (SFNWX) 5.10.03

Small-Cap Blend

Wasatch Funds:Core Growth Fund (WGROX) 14.00.54

Small-Cap Value

  • FPA Capital Fund (FPPTX) 14.10.54
  • Longleaf Partners Small Cap Fund (LLSCX) 11.50.54
  • Ariel Fund (ARGFX) 10.70.44 (SELECT FUND)
  • FPA Perennial Fund (FPPFX) 10.40.33
  • Hotchkis & Wiley Small Cap Value Fund/I (HWSIX) 9.90.33

Small-Cap Growth

  • Fidelity New Millennium (FMILX) 15.90.45
  • Wasatch Funds:Small Cap Growth Fund (WAAEX) 12.60.45
  • Wasatch Funds:Ultra Growth Fund (WAMCX) 11.40.35
  • Henlopen Fund (HENLX) 11.00.25
  • Federated Kaufmann Fund/K (KAUFX) 10.40.35

Source: Standard & Poor’s. Total returns include reinvested dividends. Data as of March 31, 2003.

Note: As one would expect, the majority of these concentrated funds each comprise a relatively small number of holdings — with a few extraordinary exceptions. For example, the multi-billion dollar Fidelity New Millennium and Federated Kaufmann Funds each contain more than 250 stocks in their portfolios. However, by our definition of concentration (top 10 holdings occupying greater than 30% of assets), they made our list.