An In-Depth Look At The MFS Value Fund

April 7, 2015

by Larry Swedroe

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As I continue with my series analyzing the performance of some of the most successful actively managed mutual funds in the marketplace, it’s important to acknowledge that I do possess the benefit of hindsight; I am selecting funds I know have done well in the past. The question I seek to answer is whether investors should expect that outperformance to continue.

With that in mind, today we’ll take an in-depth look at the MFS Value Fund (MEIAX), which Morningstar classifies as a large-value fund. One reason that I chose MEIAX is because it has the largest amount of assets under management of any fund in the MFS family.

By almost any standard, MFS certainly is a successful firm. It manages more than 80 funds with a combined total of about $191 billion in assets under management. And as of March 23, 2015, MEIAX — which has an expense ratio of 0.88% — had almost $36 billion in assets under management, or about 19% of the fund family’s total.

The fund’s inception date was January 2, 1996, so the table below provides data for the 19-year period from 1996 through 2014. The table includes figures for both MEIAX and the comparable, but passively managed, US Large Cap Value III Portfolio (DFUVX) from Dimensional Fund Advisors (DFA). DFUVX is the lowest-cost version of the fund. (Full disclosure: My firm, Buckingham, recommends Dimensional funds in constructing client portfolios.) I’ll also compare the returns of each fund to that of the Russell 1000 Value Index.

1996-2014

Fund Annualized Return (%) Annual Standard Deviation (%) Sharpe Ratio
MEIAX 10.5 17.0 0.56
DFUVX 10.1 18.8 0.49
Russell 1000 Value Index 9.2 17.3 0.47

 

MEIAX not only produced a return 0.4 percentage points higher than the passively managed DFUVX, but it did so with less volatility, resulting in a Sharpe ratio that was quite a bit greater. Both funds outperformed the Russell 1000 Value Index. This is excellent performance and likely explains why the fund has grown to almost $36 billion in assets.

As is my practice, I’ll also examine the results over the last 15-, 10- and 5-year periods to determine if there was any trend in the fund’s performance and to see if increasing assets under management have had an impact on its performance.

2000-2014

Fund Annualized Return (%) Annual Standard Deviation (%) Sharpe Ratio
MEIAX 8.0 17.7 0.43
DFUVX 8.6 20.6 0.42
Russell 1000 Value Index 6.6 18.0 0.35

 

During the most recent 15-year period, MEIAX produced a return 0.6 percentage points lower than DFUVX, though it did so with a lower standard deviation. This resulted in very similar Sharpe ratios. Compared to DFUVX, however, there no longer appears to be anything special about MEIAX. Both performed dramatically better than the Russell 1000 Value Index.

2005-2014

Fund Annualized Return (%) Annual Standard Deviation (%) Sharpe Ratio
MEIAX 8.0 17.9 0.45
DFUVX 8.2 22.6 0.40
Russell 1000 Value Index 7.3 19.0 0.41

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