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:
|5-year total return||12.17%||17.25%|
|5-year investor return||10.72%||14.09%|
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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