April 28, 2015
by Larry Swedroe
Lipper recently gave financial services firm TIAA-CREF the award for “Best Overall Large Fund Company,” making 2015 the first time any fund family has won this honor for three consecutive years. Among its actively managed peers, TIAA-CREF’s funds did exceptionally well. But does that mean your clients benefitted by owning its funds?
By way of background, The Lipper Award is given to the fund family with the lowest average decile ranking over the most recent three calendar years. On its website, TIAA-CREF proclaimed: “This is a historic achievement for a global asset management powerhouse. It reflects the consistency of our risk-adjusted returns and how we strive to deliver better investment outcomes for your clients.” They went on to add: “TIAA-CREF is a global asset manager that oversees more than $600 billion worldwide across multiple asset classes and strategies. Our 300 investment professionals have deep experience managing money through all market cycles and are focused on delivering consistent performance to help your clients work toward their goals.”
TIAA-CREF’s award-winning performance makes it a good candidate for my continuing series examining the ability of actively managed mutual fund families to add value. Using Morningstar data, I will compare the returns of funds managed by TIAA-CREF to passively managed funds of the same asset class. I will use two of the largest providers of passively managed alternatives – Dimensional Fund Advisors (DFA) and Vanguard. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
The data covers the 10-year period ending March 31, 2015. For Vanguard and DFA funds, I’ll use the lowest-cost share class available. In addition to their regular share classes, TIAA-CREF has institutional share classes. Their expense ratios are 0.25 percentage points lower than those of the regular share classes. Because the institutional share classes may not be available to most investors, the following table shows the results using the regular share class of each fund. As you review the data, keep in mind that we have the benefit of hindsight. Based on the award, we know today that TIAA-CREF had some of the best returns of any large fund family over the past three years.
10 Years Ending March 31, 2015
|Fund||Symbol||Expense Ratio (%)||Annualized Return (%)||Annualized Standard Deviation (%)||Sharpe Ratio (%)|
|TIAA-CREF Growth & Income Retire||TRGIX||0.67||9.7||19.3||0.51|
|Vanguard 500 Index Admiral||VFIAX||0.05||8.0||21.9||0.40|
|DFA U.S. Large Company I||DFUSX||0.08||8.0||21.8||0.40|
|U.S. Large Value|
|TIAA-CREF Large-Cap Value Retire||TRLCX||0.67||7.1||26.3||0.33|
|Vanguard Value Index Admiral||VVIAX||0.09||7.3||23.8||0.36|
|DFA U.S. Large Cap Value III||DFUVX||0.13||8.2||30.1||0.36|
|U.S. Small Cap|
|TIAA-CREF Small-Cap Equity Retire||TRSEX||0.74||8.3||27.0||0.37|
|Vanguard Small Cap Index Admiral||VSMAX||0.09||10.1||29.0||0.41|
|DFA U.S. Small Cap I||DFSTX||0.37||9.8||30.0||0.40|
|U.S. Real Estate|
|TIAA-CREF Real Estate Sec Retire||TRRSX||0.77||8.2||41.3||0.34|
|Vanguard REIT Index Admiral||VGSLX||0.10||9.9||42.5||0.38|
|DFA Real Estate Securities I||DFREX||0.18||9.4||42.9||0.37|
|International Large Cap|
|TIAA-CREF International Equity Retire||TRERX||0.74||5.3||29.3||0.28|
|Vanguard Developed Markets Index Admiral||VTMGX||0.09||5.1||25.7||0.27|
|DFA Large Cap International I||DFALX||0.28||5.1||25.5||0.27|
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