Performance review
The Franklin fund benchmarks its performance against a customised index made up of the S&P 500 and the Barclays US Aggregate, with each having an equal weighting.
The MFS fund also has a customised benchmark comprised of the MSCI World Index (60% weighting) and the Barclays Global Aggregate Index (40%).
Drago compared the performance of the two funds over a 10-year period, benchmarking them against a proxy index, which was made up of the MSCI World Index (55% weighting) and the Barclays Global Aggregate index (45%).
“Both funds have largely tracked the benchmark with lower volatility. But there was a period of underperformance for both funds that started in mid-2013 that continues to the day. This underperformance has further widened in 2014 and year-to-date 2015.”
Source: Bloomberg; Ticker: TEMFIAI LX: Franklin fund; MFMGBAA LX: MFS fund
For the Franklin fund, the weakness in the energy sector could have weighed on its performance. For the MFS fund, there is no single trigger, said Drago.
“I suspect underperformance of the MFS fund is mainly due to the actual outperformance of the index (MSCI World, which is primarily US equity large cap exposure).”
The recent outperformance of US equities has been driven by large tech growth companies such as Google, Amazon and Apple.
Yet the top equity exposure in the MFS fund is primarily in value sectors, which have broadly lagged the major indices.
The value versus growth difference in performance can persist for years at a time, but in general value outperforms over the long run, he said.
Performance of the funds over various tenures to 31 July:
Source: FE Analytics
The Franklin fund, as mentioned before, has held significant equity exposure to the energy sector (17.3%), which has weighed on the fund’s recent returns, said Drago.
“The weakness in the energy sector since mid-2014 is likely to be the prime cause of the funds’ underperformance both to its benchmark and to the MFS fund in the last 18 months.”
Source: FE Analytics
The MFS funds’ performance was significantly better in 2008, Drago highlighted.
In 2008, the return of the Franklin fund declined by 30%, underperforming its benchmark, which declined by nearly 18%. The MFS fund’s return (-16.8%) also fell during the 2008 financial crisis, but it was less than the Franklin fund’s decline.
A look at more recent calendar year returns:
Source: FE Analytics
