Sunday, February 10, 2013

Questioning Performance Claims Made by Value Line

Envelope received from Value Line:

From http://www.vlfunds.com/funds/valueline on 2/9/2013:
Value Line Fund | VLIFX
Investment Objective and Strategy (Condensed)
The Fund’s primary investment objective is long-term growth of capital. Current income is a secondary investment objective.
To achieve the Fund’s investment objectives the Advisor invests substantially all of the Fund’s net assets in common stocks. While the Fund is actively managed by the Adviser, the Adviser relies primarily on the rankings of companies by the Value Line Timeliness™ Ranking System (the “Ranking System”) in selecting securities for purchase or sale. The Fund’s investments principally are selected from common stocks ranked 1, 2 or 3 by the Ranking System at the time of purchase. The Adviser will determine the percentage of the Fund’s assets invested in each stock based on the stock’s relative attractiveness.
[Hmm ... Not showing 300% better than S&P 500 here; why not?]

0.25% = 12b-1 Fee, 0.69% = Max Mgmt Fee
Expense Ratios Before & After Waivers: 1.29%, 0.94%.


From https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT:
Vanguard 500 Index Fund Investor Shares (VFINX)
As the industry’s first index fund for individual investors, the 500 Index Fund is a low cost way to gain diversified exposure to the U.S. equity market. The fund invests in 500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value. The key risk for the fund is the volatility that comes with its full exposure to the stock market. Because the 500 Index Fund is broadly diversified within the large-capitalization market, it may be considered a core equity holding in a portfolio.
Expense ratio as of 04/26/2012: 0.17%; This is 85% lower than the average expense ratio of funds with similar holdings. [And 81.9% lower than VLIFX, even after VLIFX’s “waivers.”]


Retrieved 2/10/2013 from http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#symbol=^gspc;range=19900102,20130210;compare=vfinx+vlifx;indicator=;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;:

S&P 500 (blue mountain), Vanguard 500 (red), Value Line Fund (green).
 
So a fund expertly managed by Value Line using their own
Value Line Ranking System LOST 40% over the last 23 years. 

Closely tracking the S&P 500, the
Vanguard 500 fund GAINED 330% over the last 23 years.
How can Value Line justify their envelope claim?