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:

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.

If you enjoyed reading this post, subscribe to the RSS feed.  

If you enjoyed reading this post, please consider subscribing to my full RSS feed (What's RSS feed?). Or you can also choose to have free daily updates delivered right to your inbox.

• Feeling the pain at the pump? Find out how you can get up to 5% cash back with these gas rewards credit cards. It's the money you have to spend anyway. Why not get some back?
• Ready to buy stocks/ETFs with zero commission? Check out the Zecco review and try Zecco Trading to get 10 free trades/month.