May 19, 2015
by Larry Swedroe
Up-and-Coming Small- and Mid-cap Portfolio Managers #MICUS (Morningstar Conference)
In an April column, New York Times reporter Nathaniel Popper noted that, over the last few years, an expanding line of mutual funds created by commercial banks such as Goldman Sachs and JPMorgan have been drawing billions of dollars from investors looking to earn a good return.
While the fees these funds have generated are among the few consistent bright spots of growth on Wall Street, the question for investors is whether or not the active mutual funds managed by these banks actually have been good investment choices.
Popper noted that over the last 10 years, Morningstar data shows just 12% of Goldman Sachs’ mutual funds have outperformed their analyst-assigned benchmarks. Today, I’ll provide further insight into the results posted by these funds. I continue my series evaluating the performance of the market’s foremost actively managed fund families with an in-depth look at Goldman Sachs Asset Management (GSAM).
According to Morningstar, as of April 30, 2015, GSAM had more than $107 billion assets under management in mutual funds. Their website states: “Goldman Sachs Asset Management is one of the world’s leading investment managers. With over 2,000 professionals across 33 offices worldwide, GSAM provides institutional and individual investors with investment and advisory solutions, with strategies spanning asset classes, industries, and geographies.” They go on, adding: “Our investment teams represent over 700 investment professionals, capitalizing on the market insights, risk management expertise, and technology of Goldman Sachs. We help our clients navigate today’s dynamic markets, and identify the opportunities that shape their portfolios and long-term investment goals. We extend these global capabilities to the world’s leading pension plans, sovereign wealth funds, central banks, insurance companies, financial institutions, endowments, foundations, individuals and family offices, for which we invest or advise more than $1 trillion of assets.”
That all sounds nice, but certainly nothing about it is unique. After all, there are many mutual fund firms that say essentially the same thing. So, the crux of the matter is: Does GSAM add value or is the firm benefiting at the expense of the investors?
Active versus passive
As is my practice, I’ll compare the performance of GSAM’s actively managed equity funds to similar offerings from two prominent providers of passively managed funds: Dimensional Fund Advisors (DFA) and Vanguard. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
To keep the list to a manageable number of funds and to make sure I examine long-term results through full economic cycles, the period I’ll cover is the 15 years from April 2000 through March 2015. I’ll use the lowest-cost share classes when more than one class of fund is available for the full period. In cases where GSAM has more than one fund in the asset class, I will use the average return of their funds in my comparison. The table below shows the performance of 14 Goldman Sachs funds in 10 asset classes.
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