20 Equity funds with the best capture ratios over the entire market cycle
Capture ratio is a sort of “bang for your buck” summary. It’s calculated by dividing a fund’s upside capture (a fund that typically rises 1.1% when the market rises 1% has an upside capture of 1.10) by its downside capture (a fund that typically falls 1.1% when the market falls 1% has a downside capture of 1.10). Capture ratios greater than 1.0 reflect funds that produce more gains than losses; all other things being equal, high capture ratio funds are offering you the greatest reward for every unit of risk you’ve been subjected to.
Capture ratios even the playing field for cautious and aggressive investors. A cautious investor might look for a fund with a downside capture of no more than 0.80. Given that constraint, anything above 1.0 is a winner! Aggressive investors might be willing to accept downside captures of 1.10 as long as they’ve been duly compensated. So, for them too, anything above 1.0 is a winner.
I screened for:
-
- equity-oriented domestic funds, which included “flexible portfolios” and “aggressive allocation” funds but excluded global,
- with a capture ratio 1.0 or greater,
- with a downside capture ratio of 0.9 or less,
- over the entire market cycle, including both the 2007-09 crash and the 2009-present bull.
I excluded closed funds and high-minimum ones. I also excluded Copley Fund (COPLX), historically a freakishly excellent fund that lost its manager of 40 years recently. All data is current as 0f 12/31/2019.
Here are the ten best funds, ranked in order of descending capture.
Yacktman Focused (YAFFX)
Capture 1.3
Downside capture 0.70
APR 10.9%
Great Owl
Monetta Core Growth (MYIFX)
Capture 1.2
Downside capture 0.89
APR 11.6
Reynolds Blue Chip (RBCGX)
Capture 1.2
Downside capture 0.80
APR 11.0
The appeal of the Reynolds BCG fund is almost entirely driven by its performance during the 2007-09 crash. It appears to have been almost entirely in cash and simply sailed through it. $10,000 invested in RBCGX at the peak of the last market would be worth $36,000 today, the same investment in the S&P 500 index would be $26,000. Since then it’s been entirely uninspiring.
Parnassus Core Equity (PRBLX)
Capture 1.17
Downside capture 0.79
APR 10.1
Great Owl
It, along with the Yacktman funds, are the only funds in the lower downside capture group to exceed 10% annual returns over the full market cycle. It adds the attraction of a long-standing commitment to an ESG-screened portfolio.
Provident Trust (PROVX)
Capture 1.17
Downside capture 0.79
APR 10.1
Madison Dividend Income (BHBFX) ($25,000 minimum, $500 for an IRA but $100 at Schwab)
Capture 1.20
Downside capture 0.66
APR 8.9
Great Owl
Bruce (BRUFX)
Capture 1.2
Downside capture 0.58
APR 7.5
Great Owl
AMG Chicago Equity Partners Balanced (MBEAX)
Capture 1.2
Downside capture 053
APR 6.9
Intrepid Endurance (ICMAX)
Capture 1.2
Downside capture 0.46
APR 6.2
I hesitated to include ICMAX despite its long-term record. I love the absolute-value discipline and willingness to hold cash until the market offers rationally priced stocks. Cash is down to 42% of the portfolio now. That said, it’s made about 1% a year over the past 3- and 5-year periods and has undergone three sets of manager turnovers: Cinnamond to Wiggins to the current team, with president Mark Travis in and out, in and out.
Investors consciously looking to keep their downside capture as low as they can, would start with the Yacktman and Madison funds but might add . . .
First Trust Value Dividend ETF (FVD)
Capture 1.17
Downside capture 0.72
APR 9.2
Great Owl
Prospector Opportunity (POPFX)
Capture 1.14
Downside capture 0.75
APR 9.0
Great Owl
The international version of the list is a bit more challenging. Many of these funds focus on a niche, which makes the statistical analysis iffy. The capture ratios are computed against a broad international average, just as the domestic capture ratios are captured against the broad S&P 500 index. If their niche is too far afield from a broad index (for example, MAPIX or any of the funds with “small” in the name), you might find that they have major drawdowns which simply don’t correlate with the index.
Matthews Asia Dividend (MAPIX)
Capture 1.4
Downside capture 0.59
APR 7.0
First Eagle Overseas (SGOVX)
Capture 1.3
Downside capture 0.52
APR 4.5
Forester Discovery (INTLX)
Capture 1.3
Downside capture 0.36
APR 3.1
Buffalo International (BUFIX)
Capture 1.2
Downside capture 0.82
APR 5.0
Great Owl
Driehaus International Small Cap Growth (DRIOX)
Capture 1.2
Downside capture 0.81
APR 4.9
Harding Loevner International Small Companies (HLMRX)
Capture 1.2
Downside 0.80
APR 5.5
Aberdeen International Small Cap (WVCCX)
Capture 1.2
Downside 0.76
APR 5.0
BNY Mellon International Stock (DISAX)
Capture 1.2
Downside 0.73
APR 4.9
Tweedy Browne Global Value (TBGVX)
Capture 1.2
Downside 0.57
APR 4.2
Great Owl
Bottom Line:
Statistical screens offer leads, not answers. Your next step is understanding the portfolio behind the excellent numbers. Lewis Braham, a very good financial journalist and frequent contributor to MFO’s discussion board, argues:
I think it is important to analyze sector exposures within funds that performed in the last cycle and analyze how those sectors might perform in the next cycle. Yacktman, for instance, has long held exposure in consumer defensive or staples stocks such as Proctor & Gamble, Coca-Cola, Pepsi, Johnson & Johnson in addition recently to a large slug in Samsung.
The question to ask is has anything changed in the commercial outlook for such steady-eddies? I would argue for instance a lot has changed for a company like Proctor & Gamble as thanks to the Internet the competitive landscape for purchases like razor blades and soap is different. The question then becomes is the money manager aware of these changes. In Yacktman’s case, I think the answer is “yes,” from my experience with them.
Yet just because you’re aware of significant changes in the mainstays of your portfolio, doesn’t mean you have figured out what suitable replacements might be yet. That can be quite challenging.
