In the last post I looked at combining two active mutual funds in the foreign stock category. It featured calendar year numbers but I thought it would be worthwhile to provide some additional rolling data on the subject. I will follow to same setup and compare 50/50 mix of Oakmark International (OAKIX) and First Eagle Overseas (SGOVX) to Vanguard Developed Markets Index (VTMGX). The basic idea is to see how happy you would be with your fund(s) at the end of any given month if you look back either 12 or 36 months.
Exhibit 1 shows a table of stats for rolling 1- and 3-Year periods from September 1999 to April 2016. The most desirable number for each row is highlighted in green. After doing this analysis, I must admit that SGOVX looks ever more attractive as a stand-alone option. One of the categories where the 50/50 mix wins out are number of periods outperforming benchmark – although First Eagle looks better on absolute basis. Another one is correlation with the index – something we actually want to be high for diversification within larger portfolio. Despite superiority of SGOVX on many metrics, I still prefer to use it in combination with Oakmark to address the Investor Psychology argument from the first post. I remember quite clearly wondering throughout 2013 and 2014 if First Eagle has “lost it”, which of course would have been very bad timing to get out of it.
Exhibit 2 shows the same data in graphical form. I omitted the 1-Year charts as they show the same picture but with a lot more noise. On the second panel (Relative to Index), it’s amazing to me how the two funds work in concert to bail each other out to provide a smoother ride. Same goes for the correlation chart – much more predictable behavior. And First Eagle’s low standard deviation mellows out the more volatile Oakmark fund.
All in all, I still believe that mixing these two funds together ensures that advisors (and investors) are happy vast majority of the time and reduces second-guessing.
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