Calculator Investments

Columbia Funds: A Deeper Look at the Performance

Calculator Investments

Columbia Management is one of the largest investment management firms in the world. With close to 7 full decades of industry experience and expertise and over 100 individual investment strategies, Columbia has become a staple within the fund industry. In September, 2009, Ameriprise Financial, Inc. agreed to acquire Columbia Management $1 billion. In January 2015, Ameriprise's unveiled its new global brand which combined Columbia with its U.K-based affiliate Threadneedle Investments and renamed the entity Columbia Threadneedle InvestmentsThe combined company has offices across North America, Europe, Asia and the Middle East, with 450 investment professionals. As of year-end 2015, their total assets under management reached $472 Billion. In early 2015, Ameriprise agreed to settle a 401(k) excessive fees claim for $27.5 million, which involved some Columbia funds. 

Given the depth of their experience, the size of their asset base, and the numerous investment strategies that have gained traction, you would imagine that an investor’s decision to partner with Columbia and leverage that expertise would be without question. Why would so many investors give their money to Columbia if they weren’t good at what they did?

Well, we have taken the initiative to dispel the common perception that the active fund industry is delivering on the value proposition they profess. Using randomness to justify short-term outperformance, the industry has lured investors into buying into the notion that they can be a part of an exclusive group that can outperform the overall market.

Unfortunately, once we take a deeper dive into historical performance through the use of statistics, we find that the vast majority of the largest investment management firms in the world are no match for the overall market. Intricate presentations about different firms’ approaches to outsmarting everyone else become nothing more than pure salesmanship. You can find similar analyses that we have done in the past for fund companies such as:

Our analysis begins with an examination of the costs associated with the strategies. We are only looking at strategies that have at least 3 full years of performance history, which brings our total sample size to 99 funds. It should go without saying that if investors are paying a premium for investment “expertise,” then they should be receiving above average results consistently over time. The alternative would be to simply accept a market's return, less a significantly lower fee, via an index fund.

The costs we examine include expense ratios, front end (A), level (B) and deferred (C) loads, and 12b-1 fees. These are considered the “hard” costs that investors incur. Prospectuses, however, do not reflect the trading costs associated with mutual funds. Commissions and market impact costs are real costs associated with implementing a particular investment strategy and can vary depending on the frequency and size of the trades taken by portfolio managers. We can estimate the amount of cost associated with an investment strategy by looking at its annual turnover ratio. For example, a turnover ratio of 100% means that the portfolio manager turns over the entire portfolio in 1 year. This is considered an active approach and investors holding these funds in taxable accounts will likely incur a higher exposure to tax liabilities to short term and long term capital gains distributions relative to incurred by passively managed funds.

The table below details the hard costs as well as the turnover ratio for all 99 active funds offered by Columbia Management. You can search this page for a symbol or name by using Control F in Windows or Command F on a Mac. Then click the link to see the Alpha Chart. Also remember that this is what is considered an in-sample test, the next level of analysis is to do an out-of-sample test (for more information see here).

Fund Name Ticker Turnover Ratio % Prospectus Net Expense Ratio 12b-1 Fee Max Front Load Global Category
CMG Ultra Short Term Bond CMGUX 62.00 0.25 0.00   US Fixed Income
Columbia AMT-Free NC Interm Muni Bd Z NNIBX 11.00 0.56 0.00   US Municipal Fixed Income
Columbia AMT-Free GA Interm Muni Bd Z NGAMX 19.00 0.56 0.00   US Municipal Fixed Income
Columbia AMT-Free CT Interm Muni Bd Z SCTEX 6.00 0.56 0.00   US Municipal Fixed Income
Columbia AMT-Free OR Interm Muni Bd Z CMBFX 11.00 0.61 0.00   US Municipal Fixed Income
Columbia Minnesota Tax-Exempt A IMNTX 9.00 0.81 0.25 3.00 US Municipal Fixed Income
Columbia AMT-Free MD Interm Muni Bd A NMDMX 10.00 0.81 0.25 3.00 US Municipal Fixed Income
Columbia AMT-Free SC Interm Muni Bd Z NSCMX 16.00 0.56 0.00   US Municipal Fixed Income
Columbia AMT-Free Interm Muni Bd Z SETMX 15.00 0.58 0.00   US Municipal Fixed Income
Columbia AMT-Free MA Interm Muni Bd Z SEMAX 8.00 0.56 0.00   US Municipal Fixed Income
Columbia AMT-Free VA Interm Muni Bd Z NVABX 9.00 0.56 0.00   US Municipal Fixed Income
Columbia High Yield Muni Z SRHMX 7.00 0.67 0.00   US Municipal Fixed Income
Columbia Strategic Municipal Income A INTAX 16.00 0.80 0.25 3.00 US Municipal Fixed Income
Columbia Tax-Exempt A COLTX 13.00 0.76 0.20 3.00 US Municipal Fixed Income
Columbia Short Term Muni Bd Z NSMIX 37.00 0.47 0.00   US Municipal Fixed Income
Columbia California Tax-Exempt A CLMPX 12.00 0.82 0.25 3.00 US Municipal Fixed Income
Columbia AMT-Free CA Interm Muni Bd Z NCMAX 6.00 0.49 0.00   US Municipal Fixed Income
Columbia AMT-Free NY Interm Muni Bd Z GNYTX 12.00 0.50 0.00   US Municipal Fixed Income
Columbia New York Tax-Exempt A COLNX 11.00 0.81 0.25 3.00 US Municipal Fixed Income
Active Port® Multi-Manager Ttl Ret Bd A CMCPX 269.00 0.81 0.25   US Fixed Income
Columbia Bond Z UMMGX 428.00 0.61 0.00   US Fixed Income
Columbia Total Return Bond Z SRBFX 458.00 0.61 0.00   US Fixed Income
Columbia Corporate Income Z SRINX 50.00 0.67 0.00   US Fixed Income
Columbia US Government Mortgage A AUGAX 358.00 0.90 0.25 3.00 US Fixed Income
Columbia Limited Duration Credit A ALDAX 68.00 0.83 0.25 3.00 US Fixed Income
Columbia Short Term Bond Z NSTMX 73.00 0.55 0.00   US Fixed Income
Columbia Infl Protected Secs A APSAX 88.00 0.80 0.25 3.00 Inflation Linked
Columbia Convertible Securities A PACIX 71.00 1.13 0.25 5.75 Convertibles
Columbia High Yield Bond A INEAX 64.00 1.07 0.25 4.75 High Yield Fixed Income
Columbia Income Opportunities A AIOAX 61.00 1.07 0.25 4.75 High Yield Fixed Income
Columbia Strategic Income A COSIX 169.00 1.03 0.25 4.75 Other Fixed Income
Columbia Global Bond A IGBFX 90.00 1.08 0.25 4.75 Global Fixed Income
Columbia Global Infrastructure A RRIAX 60.00 1.16 0.25 5.75 Other Sector Equity
Columbia Emerging Markets Bond A REBAX 32.00 1.14 0.25 4.75 Emerging Markets Fixed Income
Columbia Asia Pacific ex-Japan R5 TAPRX 86.00 1.14 0.00   Asia ex-Japan Equity
Columbia Acorn International Select Z ACFFX 59.00 1.15 0.00   Global Equity Large Cap
Columbia Select International Equity Z NIEQX 131.00 1.15 0.00   Global Equity Large Cap
Columbia Overseas Value Z COSZX 68.00 1.14 0.00   Global Equity Large Cap
Columbia Select Global Growth A COGAX 154.00 1.40 0.25 5.75 Global Equity
Columbia Global Dividend Opportunity Z CSVFX 63.00 1.05 0.00   Global Equity
Columbia Global Equity Value B INEGX 143.00 1.93 1.00   Global Equity
Columbia Global Strategic Equity A NLGIX 75.00 1.27 0.25 5.75 Global Equity
Columbia Select Global Equity A IGLGX 132.00 1.40 0.25 5.75 Global Equity
Columbia Greater China A NGCAX 74.00 1.56 0.25 5.75 Greater China Equity
Columbia Emerging Markets Z UMEMX 76.00 1.36 0.00   Emerging Markets Equity
Columbia Acorn Emerging Markets A CAGAX 58.00 1.80 0.25 5.75 Emerging Markets Equity
Columbia Acorn European A CAEAX 37.00 1.76 0.25 5.75 Europe Equity Large Cap
Columbia European Equity A AXEAX 63.00 1.35 0.25 5.75 Europe Equity Large Cap
Columbia Pacific/Asia Z USPAX 73.00 1.23 0.00   Asia Equity
Columbia Acorn International Z ACINX 50.00 0.99 0.00   Global Equity Mid/Small Cap
Columbia Income Builder A RBBAX 26.00 1.02 0.25 4.75 Cautious Allocation
Columbia Thermostat Z COTZX 69.00 0.77 0.00   Cautious Allocation
Columbia Capital Allocation Cnsrv A ABDAX 24.00 1.04 0.25 4.75 Cautious Allocation
Columbia Global Opportunities A IMRFX 104.00 1.17 0.25 5.75 Allocation
Columbia Absolute Ret Ccy & Inc A RARAX 0.00 1.75 0.25 3.00 Currency
Columbia Commodity Strategy I CCIYX 0.00 1.08 0.00   Commodities Broad Basket
Columbia Capital Allocation Agrsv A AXBAX 12.00 1.20 0.25 5.75 Aggressive Allocation
Columbia Adaptive Risk Allocation A CRAAX 256.00 1.24 0.25 5.75 Moderate Allocation
Columbia Capital Allocation Mod Cnsrv A NLGAX 21.00 1.05 0.25 5.75 Cautious Allocation
Columbia Capital Allocation Moderate A ABUAX 17.00 1.08 0.25 5.75 Cautious Allocation
Columbia Flexible Capital Income A CFIAX 60.00 1.19 0.25 5.75 Moderate Allocation
Columbia Capital Allocation Mod Agrsv A NBIAX 16.00 1.16 0.25 5.75 Moderate Allocation
Active Port® Multi-Mgr Alt Strategies A CPASX 304.00 1.48 0.25   Multialternative
Columbia Balanced Z CBALX 102.00 0.79 0.00   Moderate Allocation
Columbia Seligman Global Technology A SHGTX 64.00 1.42 0.25 5.75 Technology Sector Equity
Columbia Seligman Comms & Info A SLMCX 61.00 1.36 0.25 5.75 Technology Sector Equity
Columbia Global Technology Growth Z CMTFX 60.00 1.14 0.00   Technology Sector Equity
Columbia Disciplined Growth A RDLAX 102.00 1.20 0.25 5.75 US Equity Large Cap Growth
Columbia Select Large Cap Growth Z UMLGX 56.00 0.85 0.00   US Equity Large Cap Growth
Columbia Large Cap Growth II A NMTAX 125.00 1.17 0.25 5.75 US Equity Large Cap Growth
Columbia Large Cap Growth III A NFEAX 102.00 1.17 0.25 5.75 US Equity Large Cap Growth
Columbia Large Cap Growth V A NMGIX 106.00 1.17 0.25 5.75 US Equity Large Cap Growth
Columbia Large Cap Growth Z GEGTX 59.00 0.86 0.00   US Equity Large Cap Growth
Active Portfolios® Multi-Manager Gr A CSLGX 39.00 1.17 0.25   US Equity Large Cap Growth
Columbia Select Large Cap Equity Z NSEPX 102.00 0.92 0.00   US Equity Large Cap Blend
Columbia Contrarian Core Z SMGIX 60.00 0.84 0.00   US Equity Large Cap Blend
Columbia Disciplined Core A AQEAX 77.00 1.03 0.25 5.75 US Equity Large Cap Blend
Columbia Large Cap Enhanced Core Z NMIMX 89.00 0.64 0.00   US Equity Large Cap Blend
Columbia Disciplined Value A RLCAX 89.00 1.19 0.25 5.75 US Equity Large Cap Value
Columbia Diversified Equity Income A INDZX 48.00 1.03 0.25 5.75 US Equity Large Cap Value
Columbia Dividend Opportunity A INUTX 78.00 1.00 0.25 5.75 US Equity Large Cap Value
Columbia Select Large-Cap Value A SLVAX 4.00 1.19 0.25 5.75 US Equity Large Cap Value
Columbia Dividend Income Z GSFTX 27.00 0.77 0.00   US Equity Large Cap Value
Active Portfolios® Multi-Manager Value A CDEIX 55.00 1.13 0.25   US Equity Large Cap Value
Active Port® Multi-Mgr Small Cp Equity A CSCEX 75.00 1.39 0.25   US Equity Small Cap
Columbia Small Cap Growth I Z CMSCX 117.00 1.10 0.00   US Equity Small Cap
Columbia Acorn USA Z AUSAX 35.00 1.18 0.00   US Equity Small Cap
Columbia Select Smaller-Cap Value A SSCVX 26.00 1.36 0.25 5.75 US Equity Small Cap
Columbia Disciplined Small Core Z SMCEX 23.00 1.13 0.00   US Equity Small Cap
Columbia Small Cap Value Fund I A CSMIX 65.00 1.34 0.25 5.75 US Equity Small Cap
Columbia Small Cap Value Fund II A COVAX 57.00 1.27 0.25 5.75 US Equity Small Cap
Columbia Small/Mid Cap Value A AMVAX 50.00 1.22 0.25 5.75 US Equity Small Cap
Columbia Acorn Z ACRNX 21.00 0.82 0.00   US Equity Mid Cap
Columbia Mid Cap Growth Z CLSPX 101.00 0.92 0.00   US Equity Mid Cap
Columbia Acorn Select Z ACTWX 55.00 0.88 0.00   US Equity Mid Cap
Columbia Mid Cap Value A CMUAX 47.00 1.17 0.25 5.75 US Equity Mid Cap
Columbia Global Energy & Natural Res Z UMESX 51.00 1.05 0.00   Natural Resources Sector Equity
Columbia Real Estate Equity Z CREEX 32.00 0.99 0.00   Real Estate Sector Equity
Columbia Floating Rate A RFRAX 36.00 1.04 0.25 3.00 US Fixed Income

On average, an investor who utilized an equity strategy from Columbia experienced a 1.17% expense ratio, a 0.16% 12b-1 fee, and a 5.61% max front-end load for equity funds with a load. Similarly, an investor who utilized a bond strategy from Columbia experienced a 0.73% expense ratio, a 0.12% 12b-1 fee, and an average 3.58% max front-end load for bond funds with a load. These fees can have a substantial impact on an investor’s overall accumulated wealth if it is not backed by superior performance.

The next question we address is whether investors can expect superior performance in exchange for the higher costs associated with Columbia’s strategies. It is important to mention that these performance figures do NOT include the front-end load. If an investor paid the front-end load, their return is worse than the results we show here. Not all investors pay the front-end load depending on who sold the fund to the investor, if the fund is in a qualified retirement plan, etc. We compared each of the 99 strategies since inception and against its current Morningstar assigned benchmark to see just how well each has delivered on their perceived value proposition. We have included alpha charts for each strategy at the bottom of this article. Here is what we found:

  • 46% (46 funds) have outperformed their respective benchmarks since inception, having delivered a POSTIVE alpha
  • 54% (53 funds) have underperformed their respective benchmarks since inception, having delivered a NEGATIVE alpha
  • 2% (2 funds) have outperformed their respective benchmarks consistently enough since inception to provide 95% confidence that such outperformance will persist as opposed to being based on random outcomes 

In general, we conclude that the Columbia family of funds has no expectation of producing above-average returns for their investors. The majority (54%) of their funds didn’t beat their benchmark from inception. The inclusion of statistical significance is key to this exercise as it indicates which outcome is the most likely vs. random-chance outcomes. As a fiduciary, we need to be sure beyond any shadow of a doubt that a strategy we recommend is going to best serve our clients.

But what about the 2 funds that had a statistically significant alpha at the 95% confidence level? They are skilled, right? We would just like to remind readers that based on a sample of 99 individual funds, we would expect 3 (1 in 40) to have a statistically significant alpha just by chance alone. Therefore, it is hard to decipher whether or not Columbia has displayed some skill or this is just example of random outcomes from a large sample size. To give a similar analogy, if we filled Yankee Stadium (54,251 max capacity) and gave everyone a coin to flip, just by random chance a handful of individuals might get 10 heads in a row. Are they skilled coin flippers? Of course not!

Now some readers may believe that we are not properly analyzing performance since we do not take into account risk (Beta). We understand your concern. Because Morningstar is limited in terms of trying to fit the best commercial benchmark with each fund in existence, there is of course going to be some error in terms of matching up proper characteristics such as average market capitalization or average price-to-earnings ratio. A better way of controlling for these possible discrepancies is to run multiple regressions where we account for the known dimensions (Betas) of expected return in the US (market, size, relative price, etc.). For example, if we were to look at all of the US based strategies from Columbia who have been around for at least the last 10 years, we could run multiple regressions to see what their alpha looks like once we control for Beta. The chart below displays the average alpha and standard deviation of that alpha for the last 10 years ending 12/31/2015.

 

As you can see, not a single fund produced an alpha that was statistically significant at the 95% confidence level (green shaded area). This is what we would expect in a well functioning capital market.

So what is the bottom line? In general, Columbia has not demonstrated that their process of hiring the best analysts and managers and implementing their investment strategies is superior to anyone else. To say they apply a unique process to just 2 of their investment strategies seems very unlikely. The majority of funds offered by Columbia have failed to outperform their benchmark since inception. Of those that did by a statistically significant amount, it is similar to what we would expect by random chance alone. In a global context, because we see a very similar trend across many major fund management complexes, general intuition would indicate that Columbia falls victim to a similar fate based on market efficiency, cost, and competition.

As we always like to remind investors, a more reliable investment strategy for capturing the returns of global markets is to buy, hold, and rebalance a globally diversified portfolio of index funds.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Here is a calculator to determine the t-stat. Don't trust an alpha or average return without one.

The Figure below shows the formula to calculate the number of years needed for a t-stat of 2. We first determine the excess return over a benchmark (the alpha) then determine the regularity of the excess returns by calculating the standard deviation of those returns. Based on these two numbers, we can then calculate how many years we need (sample size) to support the manager's claim of skill.