Mutual Fund Portfolio Checkup

It has been more than a year since I reshuffled my mutual fund portfolio in 2005 when I dumped two small-cap funds and one bond fund. The only new fund I added in the past two years is ADVDX. Currently, I have a dozen funds in my taxable accounts and the asset allocation is as follows (obtained with Morningstar's Instant X-Ray):

The investment style heavily tilts towards large-cap stocks, which make up nearly 60% of the total assets and this actually is the reason that I think it's time to make some adjustments. I want to reduce the large-cap portion of the portfolio while increasing the exposure to small- and mid-cap stocks.   

When I built the current portfolio nearly five years ago, two funds, CSVFX and CGMFX, were categorized as small- or mid-cap funds. Both funds, however, have undergone style/category changes in the past four years after putting up some extraordinary returns (for example, the return of CGMFX in 2003 is 66% and CSVFX returned 36% during the same period). The most recent change for CSVFX was in last December as its category shifted from mid-cap blend to large-cap blend. At the same time, Morningstar also re-characterized CGMFX from mid-cap to large-cap blend. In addition to these two large-cap funds, I also have DODGX which is my core large-cap holding. So between CSVFX and CGMFX, which one should I cut loose?

Here's some key comparisons between these two funds:

Category CSVFX CGMFX
Expense ratio 0.99% 1.07%
Yield 0.71% 2.15%
5-year total return 12.17% 17.25%
5-year investor return 10.72% 14.09%
Standard deviation 7.19 20.87
Assets $1210M $2,276M
My assets $7,560 $10,400

which shows that CSVFX is less volatile, has smaller ER, and returns less, while CGMFX is much more volatile, is more expensive, and returns more. Also CGFMX has a much bigger net assets than CSVFX does. It seems there's no clear advantage or disadvantage of either one. However, when I looked at the top 25 holdings of each fund, plus DODGX, I found that CSVFX shares 6 components with DODGX. That's quite some significant overlaps. Taking this into consideration, it makes sense to keep CGMFX, despite the high volatility and ER. Besides, selling CSVFX will have a smaller impact on my tax bill as the appreciation of the fund is smaller than that of CGMFX.

I don't plan to find any large-cap replacement. Instead, the proceeds will be used to add a small-cap fund, which is yet to be identified. I am looking not only small-cap mutual funds, but ETFs as well.

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3 Responses to “Mutual Fund Portfolio Checkup”

  1. frank daar |  Jan 31, 2007 at 3:01 am

    I have downloaded Firefox,rarely find it more useful than Safari, there are a handful of sites where safari fails–but firefox does wierd unpleasant things with my Yahoo homepage