Deeper Look

Oppenheimer Funds: A Deeper Look At Their Performance

Deeper Look

Oppenheimer Funds is a subsidiary of MassMutual, one of the largest financial institutions in the entire world. Having roots dating back to 1881, the Oppenheimer name has acted as a beacon of financial expertise. Their services include investment banking, investment management, and their own wealth management service: all deployed on a global scale.

But not all news has been positive. In January of 2015, they settled civil lawsuits with the Securities and Exchange Commission (SEC) in regards to brokerage registration provisions as they applied to certain penny stocks. They also settled a $89.5 million class-action lawsuit against losses incurred in six of their bonds funds during the financial crisis of 2008-2009. By investing outside of their stated objectives, investors in these particular bonds funds got caught up in the sub-prime mortgage crisis that plagued many financial institutions during that time.

In a very similar vein, today we are going to bring the day of reckoning to all of their investment strategies. While their global footprint and millions of dollars in revenue shows a powerful financial institution based on a successful track record of guiding investors with their capital, it is really just quite a façade for a somewhat abysmal track record, at least as it applies to their mutual funds. We have done similar analyses for companies such as Wells Fargo, MFS Investment Management, JP Morgan, Lord Abbott, USAA, Thrivent, American Funds, and Fidelity. All have led to same conclusion: active investing has created no value for investors while inflating the profits of those who have failed in their intended endeavors. The size of their assets has come down to salesmanship and not rigorous empirical proof.

As always, we begin our analysis by examining the costs associated with investing in strategies offered by Oppenheimer Funds. The costs we examined included the expense ratios, front end and deferred loads, and 12b-1 fees. These are considered the “hard” costs that investors incur. What are not itemized in a prospectus are 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 roughly estimate, although it isn’t completely robust, 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 a very active approach to their investment strategies and for investors holding these funds in taxable accounts, there is a higher exposure to tax liabilities to short term and long term capital gains distributions versus passively managed funds. The table below gives the hard costs as well as the turnover ratio for all 71 Oppenheimer funds that have at least 1 year of performance history.

Name (Click Link for Alpha Chart) Ticker Turnover Ratio % Prospectus Net
Expense Ratio
12b-1 Fee Max Front Load Global Category
Oppenheimer Limited-Term Government A OPGVX 155.00 0.80 0.25 5.75 Allocation
Oppenheimer Ultra-Short Duration Y OSDYX 106.00 0.25   5.75 US Equity Large Cap Growth
Oppenheimer Rochester® AMT-Free Munis A OPTAX 9.00 0.81 0.25 5.75 Cautious Allocation
Oppenheimer Rochester® High Yld Muni A ORNAX 16.00 0.74 0.15 5.75 Commodities Broad Basket
Oppenheimer Rochester® Interm Term MuniA ORRWX 56.00 0.95 0.25 5.75 Cautious Allocation
Oppenheimer Rochester® Ltd Term Muni A OPITX 16.00 0.77 0.25 4.75 US Fixed Income
Oppenheimer Rochester® MA Municipal A ORMAX 16.00 0.80 0.25 4.75 US Fixed Income
Oppenheimer Rochester® MN Municipal A OPAMX 13.00 0.80 0.25 5.75 Emerging Markets Equity
Oppenheimer Rochester® NJ Municipal A ONJAX 7.00 0.87 0.15 5.75 US Equity Small Cap
Oppenheimer Rochester® Ohio Municipal A OROHX 9.00 0.80 0.25 5.75 US Equity Mid Cap
Oppenheimer Rochester® PA Municipal A OPATX 12.00 0.77 0.15 5.75 US Equity Large Cap Value
Oppenheimer Rochester® AZ Municipal A ORAZX 17.00 0.80 0.25 5.75 Emerging Markets Equity
Oppenheimer Rochester® MD Municipal A ORMDX 7.00 0.80 0.25 4.75 Emerging Markets Fixed Income
Oppenheimer Rochester® Michigan Muni A ORMIX 8.00 0.80 0.25 5.75 US Equity Large Cap Growth
Oppenheimer Rochester® NC Municipal A OPNCX 15.00 0.80 0.25 5.75 US Equity Large Cap Value
Oppenheimer Rochester® VA Municipal A ORVAX 11.00 0.80 0.25 5.75 Global Equity
Oppenheimer Rochester® Ltd Term CA MuniA OLCAX 39.00 0.79 0.25 5.75 Multialternative
Oppenheimer Rochester® LtdTerm NY MunisA LTNYX 9.00 0.78 0.25 5.75 Global Equity
Oppenheimer Rochester® Short Term Muni A ORSTX 58.00 0.81 0.25 5.75 Allocation
Oppenheimer Rochester® CA Municipal A OPCAX 21.00 0.95 0.25 4.75 High Yield Fixed Income
Oppenheimer Rochester® AMT-Free NY MuniA OPNYX 7.00 0.84 0.25 5.75 Multialternative
Oppenheimer Rochester® Fund Municipals A RMUNX 13.00 0.73 0.15 5.75 Multialternative
Oppenheimer Core Bond A OPIGX 85.00 0.85 0.25 5.75 Allocation
Oppenheimer Corporate Bond A OFIAX 100.00 1.01 0.25 4.75 Cautious Allocation
Oppenheimer Limited-Term Bond A OUSGX 83.00 0.82 0.25 5.75 Global Equity
Oppenheimer Global Strategic Inc A OPSIX 79.00 1.01 0.25 5.75 Real Estate Sector Equity
Oppenheimer Global High Yield A OGYAX 67.00 1.24 0.25 4.75 US Fixed Income
Oppenheimer International Bond A OIBAX 111.00 1.02 0.25 5.75 Global Equity
Oppenheimer Emerging Markets Lcl Dbt A OEMAX 107.00 1.25 0.25 5.75 Precious Metals Sector Equity
Oppenheimer Active Allc A OAAAX 15.00 1.20 0.25 4.75 Global Fixed Income
Oppenheimer Global Allocation A QVGIX 83.00 1.29 0.25 5.75 Global Equity Large Cap
Oppenheimer Commodity Strat Total Ret A QRAAX 138.00 1.73 0.25 5.75 Global Equity Mid/Small Cap
Oppenheimer SteelPath MLP Alpha A MLPAX 36.00 1.52 0.25 5.75 Global Equity Large Cap
Oppenheimer SteelPath MLP Alpha Plus Y MLPNX 39.00 1.67   2.25 US Fixed Income
Oppenheimer SteelPath MLP Income A MLPDX 18.00 1.38 0.25 2.25 US Fixed Income
Oppenheimer SteelPath MLP Select 40 A MLPFX 8.00 1.12 0.25 5.75 US Equity Large Cap Blend
Oppenheimer Moderate Inv A OAMIX 14.00 1.06 0.25 5.75 US Equity Mid Cap
Oppenheimer Capital Income A OPPEX 79.00 1.02 0.25 5.75 US Equity Large Cap Blend
Oppenheimer Conservative Inv A OACIX 14.00 1.01 0.25 5.75 US Equity Small Cap
Oppenheimer Global Multi-Asset Income A QMAAX 18.00 1.31 0.25 5.75 US Equity Mid Cap
Oppenheimer Fundamental Alternatives A QVOPX 62.00 1.36 0.25 5.75 Moderate Allocation
Oppenheimer Global Multi Strategies A OARAX 48.00 1.29 0.25 5.75 Real Estate Sector Equity
Oppenheimer Global Multi-Alternatives A ODAAX 52.00 1.37 0.25 5.75 US Equity Large Cap Blend
Oppenheimer International Diversified A OIDAX 7.00 1.26 0.25 4.75 US Municipal Fixed Income
Oppenheimer International Growth A OIGAX 10.00 1.14 0.25 4.75 US Municipal Fixed Income
Oppenheimer International Value A QIVAX 79.00 1.31 0.25 4.75 US Municipal Fixed Income
Oppenheimer Equity Inv A OAAIX 10.00 1.17 0.25 4.75 US Municipal Fixed Income
Oppenheimer Global A OPPAX 11.00 1.14 0.25 4.75 US Municipal Fixed Income
Oppenheimer Global Opportunities A OPGIX 16.00 1.19 0.25 4.75 US Municipal Fixed Income
Oppenheimer Global Value A GLVAX 102.00 1.32 0.25 2.25 US Municipal Fixed Income
Oppenheimer Developing Markets A ODMAX 36.00 1.30 0.25 2.25 US Municipal Fixed Income
Oppenheimer Emerging Markets Innvtrs A EMIAX 34.00 1.71 0.25 2.25 US Municipal Fixed Income
Oppenheimer International Small-Mid Co A OSMAX 15.00 1.43 0.25 2.25 US Municipal Fixed Income
Oppenheimer Gold & Special Minerals A OPGSX 79.00 1.17 0.25 4.75 US Municipal Fixed Income
Oppenheimer Capital Appreciation A OPTFX 66.00 1.06 0.25 4.75 US Municipal Fixed Income
Oppenheimer Equity A OEQAX 57.00 1.03 0.25 4.75 US Municipal Fixed Income
Oppenheimer Main Street A MSIGX 43 0.94 0.25 4.75 US Municipal Fixed Income
Oppenheimer Main Street Select A OMSOX 74 1.14 0.25 4.75 US Municipal Fixed Income
Oppenheimer Rising Dividends A OARDX 60 1.06 0.25 4.75 US Municipal Fixed Income
Oppenheimer Dividend Opportunity A OSVAX 46 1.15 0.25 4.75 US Municipal Fixed Income
Oppenheimer Equity Income A OAEIX 43 1.02 0.25 4.75 US Municipal Fixed Income
Oppenheimer Value A CGRWX 51 0.96 0.25 2.25 US Municipal Fixed Income
Oppenheimer Discovery A OPOCX 88 1.11 0.25 4.75 US Municipal Fixed Income
Oppenheimer Main Street Small Cap A OSCAX 55 1.25 0.25 3.5 US Fixed Income
Oppenheimer Discovery Mid Cap Growth A OEGAX 91 1.33 0.25 5.75 US Equity Small Cap
Oppenheimer Main Street Mid Cap A OPMSX 82 1.1 0.25 5.75 Energy Sector Equity
Oppenheimer Mid Cap Value A QVSCX 47 1.18 0.25   Energy Sector Equity
Oppenheimer Global Real Estate A OGRAX 55 1.45 0.25 5.75 Energy Sector Equity
Oppenheimer Real Estate A OREAX 60 1.32 0.25 5.75 Energy Sector Equity
Oppenheimer Senior Floating Rate A OOSAX 39 0.97 0.25   US Fixed Income
Oppenheimer Senior Floating Rt Pls A OSFAX 68 1.3 0.25 5.75 US Equity Large Cap Value

On average, an investor who has utilized a fund offering from Oppenheimer has experienced a 1.07% expense ratio, a 0.24% 12b-1 fee, and a front-end load of 5.0%. These fees can have a substantial impact on an investor’s overall accumulated wealth if it is not backed up by superior performance. Further, the average turnover ratio is 46.48%, which implies an average holding period for each individual stock or bond of 2 years. This implies that Oppenheimer, on average, makes investment decisions based on very a short-term outlook, which they believe they can accurately predict and exploit. In complete contrast, most index funds have an average holding period of decades upon decades, thus removing themselves from focusing on the random noise that characterizes short term market movements and instead focuses on the long term.

We now know that Oppenheimer investors are paying a high price for the opportunity for above average returns. Is that what they are actually receiving? We compared all 71 strategies against their Morningstar assigned benchmark since inception to see just how well Oppenheimer has done in delivering their perceived value proposition. We have included alpha charts for each strategy at the bottom of this article. Here is what we found:

  • 37 (52%) have delivered a NEGATIVE alpha, which means that they have underperformed their respective benchmarks since inception
  • 34 (48%) have delivered a POSTIVE alpha, which means that they have outperformed their respective benchmarks since inception
  • 1 (1.4%) has delivered a POSITIVE alpha at the 95% CONFIDENCE LEVEL, which means that it has outperformed their respective benchmark consistently enough since inception that we have 95% confidence that it will persist in the future and is not merely based on random outcomes

In general, we can include that Oppenheimer, as a whole, has been no better than a fair coin at producing above-average returns for their investors. We like to include an analysis of statistical significance because it is important to base investment decisions off of highly likely outcomes and not become victims of randomness. So what about the 1 fund that produced a statistically significant alpha at the 95% confidence level?

Before we get into the specifics of why we believe that this outperformance is based off of pure luck, we would just like to remind readers that based on a sample of 71 individual funds, we would expect 2 (1 in 40) to have a statistically significant alpha just by chance alone. Oppenheimer 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 1 of their investment strategies seems very unlikely.

The 1 fund in this case is the Oppenheimer Global Multi-Alternatives A Fund (ODAAX). The fund began in 2013 and has produced an average alpha of 16.99% with a t-stat of 2.01. According to Morningstar, its respective benchmark is the Morningstar Moderate Risk Target benchmark. We are highly suspect of this outperformance given the very little history of the fund. Given that the t-stat is right at the 2.01 level, we are cautious to draw any conclusions about its performance given that just 1 year of underperformance is likely to substantially alter that t-stat, which is why we like to see a longer sample of performance data since any given year will only slightly alter that t-stat metric.

It is important to note that Morningstar assigned benchmarks are not robust in terms of matching the specific risk characteristics of a particular fund. A more robust analysis would be to run three factor multiple regressions of the monthly returns of each Oppenheimer fund against the known dimensions of expected return: market, size, and relative-price. We are, in effect, creating our own customized benchmarks for deciphering whether or not alpha is present once we control for the known risks that are priced in individual stocks.

We took all US based stock funds that have at least 10-years of performance history and ran multiple regressions for each to control for the known risk factors to see if there was existence of alpha with a high degree of certainty (t-stat>2). Of the 9 funds we examined, there was not a single fund that had a positive alpha. In fact, most alphas were negative which is what we would expect in a well functioning capital market. The results are displayed visually below.

While Oppenheimer has developed the reputation of being one of the leading experts when it comes to investing, their value in delivering above-average performance is an illusion. The odds of choosing an Oppenheimer fund that produced above-benchmark returns (alpha) is no better than a fair coin and that fair coin doesn’t cost 1% of assets under management in order to flip it. Once again, we come to the same conclusion that investors are better served by sticking with a globally diversified portfolio of index funds that matches their capacity to take risk.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

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.

We have taken a deeper look at the performance of several other mutual fund companies and have come to one universal conclusion: they have failed to deliver on the value proposition they profess, which is to reliably outperform a risk comparable benchmark. You can review by clicking any of the links below: