Having taken a moment to review the comparative numbers of JMCVX & FMILX in the previous post, it’s time to jump in and make some decisions. By the end of this article we’ll have evaluated the fundamentals of the Janus Investment Fund Perkins Mid Cap Value Fund (JMCVX), and the Fidelity Vernon Street Trust New Millennium Fund (FMILX).
By taking into consideration aspects such as diversification, fees, investment requirements, and risk vs return, we’ll be able to come up with a solid understanding of what kinds of portfolios benefit from each investment. Lastly, we’ll go back and compare the fund’s strategic implementation, and compare it against its original strategy, and see whether or not the management is staying true to its goals.
Objective & Strategy
Starting with looking at the objectives of these funds, it’s important to notice how it is that these funds pursue value in two different ways. JMCVX specifically cites value investment as a key strategic driver in the purchasing of securities. However, FMILX cites some pretty broad trends as being their driving indicator. Immediately we can see how it is that this comparison will evaluate the effectiveness of narrow and broad screening strategies.
Comparative Performance and Distributions
From a performance perspective, an immediate short-term bias is evident. While JMCVX shows a short-term loss, it has managed to outperform FMILX by a full 2.2% over the long term. In addition, the Janus fund has improved the investor NPV realized from holding the fund by issuing some pretty large distributions over its lifespan. However, FMILX has out-performed JMCVX by a solid 7% over the short term.
The trick to evaluating these returns would then be to look at the value of the long-term returns as they related to the investor at the time of purchase, and take a moment to discuss how it is that these types of returns relate to our portfolios. Are we interested in short-term returns in turbulent periods, or long-term distributions?
Capital Requirements & Fees
There is no real discrepancy between either of these funds with respect to initial capital requirements or management fees. Given the near-indexed nature of these funds, it is no surprise that the costs of maintaining the fund are extremely similar to that of even an ETF position. Because these funds both act as general mechanisms of diversification by providing breadth, the costs should be more than acceptable.
When looking at the risk profiles of both of these securities, it becomes a bit more apparently how it is that the two funds diverge. Specifically, I’d encourage you to take a moment to notice how it is that the standard deviation, beta and variance profiles of bother positions tend to consistently demonstrate a greater risk for the Fidelity fund. Meanwhile, notice how the Janus fund maintains a lower volatility, but sacrifices a great deal of alpha (a metric used to evaluate the ability of a fund manager’s specific ability to outperform the market). It is from this profile that we can begin to understand how it is that the Janus fund must be maintaining a greater level of diversification, and might therefore be best suited to a smaller portfolio.
The portfolio holdings of these two funds confirm our assumptions from examining the respective risk profiles. Specifically, the Janus fund is far better diversified than the Fidelity Fund. Even though the Fidelity fund holds more securities, it still dedicates a full 20% of its holdings to its top ten holdings, much of which being invested in a company-controlled money-market fund.
Additionally, the fund is heavily invested in the technology and healthcare industries, which are both widely considered to be high-risk. This is compared to Janus’ focus on somewhat equal weighting that only slightly favors the top-ten holdings of the fund, and places a great deal of its focus on stable financial and industrial industries. Additionally, the fund does not invest in its own funds, but instead focuses on applying its scale towards individual securities. Granted, the Fidelity money-market fund is likely to be a safe investment, I find it hard to recognize it as being representative of broad economic, societal, or demographic change that will shape the market place.
Conclusions and Evaluations
Having sifted through the information, it suddenly becomes apparent that these funds are not quite as similar as they may have initially appeared. While both funds serve to provide broad market exposure to value, they pursue the objective very differently. While the Janus fund stays true to its purpose of creating value through diversification and breadth, the Fidelity fund pursues a somewhat more subjective approach, and seems to be more aggressively pursuing the opportunities they see as being relevant to their mandate of societal relevance.
While these pursuits take the Fidelity fund slightly outside the bounds of dedicated diversification, they have been successful in creating value for fund-holders through capital appreciation, while still providing a wide overall market exposure for the unit holder.
Realistically, both of these funds provide excellent investment opportunities for the personal portfolio. However, they differ in the scenarios for which they are best suited. On the one hand, the Janus fund provides a disciplined back-bone to an existing portfolio, and therefore buffers the portfolio against any more specific strategies that the investor might be more aggressively pursuing.
Alternatively, the Fidelity fund might act better as its own holding, in the way that it appears to be a somewhat more actively managed fund. Most simply put, it is a matter of sophistication. If you’re looking for a cheap method of diversification, you might want to talk to your advisor about the Janus fund. If you’re looking for a hands-off all-in-one package, you might want to instead investigate the Fidelity option.