ebook essays pieces of the puzzle
Monday, July 25th, 2011
in the middle

I don’t watch much live television, but when I do I’m often amazed by the number and nature of commercials for investment firms.  During the Open Championship, I saw ones promoting the mutual funds of Goldman Sachs (GS).

That got me to look at the fund lineup (I guess the advertising worked) and I found that there were 72 offered by Goldman, many more than I had imagined.  As a group, they don’t show well in the performance derby, with 19% of those rated by Morningstar being awarded one star, 48% rated as two-star funds, 27% getting three stars, and 6% getting four.  Not one of the funds is rated five stars.  (These percentages are based on the oldest class of shares for each fund.)

Two of the three biggest funds are shown above (the other invests in high yield).  I found it interesting that the largest equity funds were both classified as mid cap.  At the top, Goldman Sachs Mid Cap Value (GCMAX).  In the middle, Goldman Sachs Growth Opportunities (GGOAX), a mid cap growth fund.  Each appears in terms of its relative performance versus its benchmark.

Whenever you deal with the alphabet soup of fund classes, you need to be specific as to which ones you use.  These are the A shares.  Had I used the “institutional” classes, the returns would be four percent higher in each case for the decade shown, due to the difference in expenses.  That discrepancy doesn’t even factor in the huge front-end sales charge that would further depress the return on the A shares.

These are both three-star funds that have mostly marked time with their benchmarks, yet they have a nice chunk of assets, at least in relation to Goldman’s overall fund business.  That’s probably because of what you see in the bottom panel.  Mid cap stocks have been the place to be, therefore it’s where the assets are.  Because of that, when the shift to big stocks happens, it’s likely to go on for quite a while.  (Chart:  Bloomberg terminal.)

The evolving mutual fund landscape will be the subject of a number of postings in the coming weeks and months.  If that’s an area of interest to you, you should sign up for notifications of new postings on the research puzzle and pix (or add the sites to your reader to get full RSS feeds), so that you don’t miss any of them.