Which No Load Fund Is better: CVGRX or CAAPX?

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The following story made me chuckle because the answer surprised me and may surprise you as well.

MarketWatch had an interview with Morningstar mutual fund analyst Marta Norton. The point of the interview was Marta’s contention that funds should earn their place in your portfolio by “meeting future expectations” rather than past performance. As an example, she mentioned CVGRX and CAAPX.

Hmm. How do you do that?

Being a numbers person, I first compared the 2 funds against each other over 2 years, 5 years and 10 years. The 2 year comparison is shown below:

It appears that, based on those numbers, CVGRX is the clear winner. Add to that Morningstar’s (in my view useless) ranking of four stars for CVGRX vs. three stars for CAAPX and, to the casual observer, the case for CVGRX is further supported.

To prove her point, however, Marta put a hold rating on CVGRX suggesting that recent performance and asset growth could hinder future returns. At the same time, she put a Buy on CAAPX.

This is confusing. Morningstar has always promoted their star rankings as the ultimate in comparing funds before you buy. Has that now changed? Are they weighing other factors?

While I don’t subscribe to their theory, I thought it would be interesting to compare these funds side by side using the momentum data from my weekly StatSheet. Here’s what I found (double click to enlarge):

It’s obvious that, based on all momentum figures for our current buy cycle, CAAPX came out ahead.

Does that mean that Morningstar is now looking at shorter term numbers to identify funds with good growth potential or are they perhaps (anonymously) subscribing to my StatSheet? (Humor attempt)
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Comments 4

  1. You showed the two-year pricing. On the one-year chart, CAAPX looks better, like in your StatSheet. I don’t know if your price graph is adjusted for distributions. When I look at BigCharts.marketwatch.com, the distributions are not taken into account on the graph.

    Morningstar also publishes Pick/Pan ratings to show their future outlook, which doss not have to be correlated to the star rating, which is based on past performance adjusted for volitility.

  3. Moringstar also rates these funds as follows:
    CAAPX – Medium Blend, Low Risk, Below Average Returns, 67th in its category (last year)

    CVGRX – Large Growth, Above Average Risk, Below Average Returns, 82nd in its category (last year)

    CAAPX is no-load with ongoing expenses of 0.75%

    CVGRX has a 4.75% sales load, a 2% redemption charge and ongoing 1% expenses.

    Bottom line, both of these funds are losers, and one charges a high load! It’s like asking would you rather be eaten by a tiger or a lion – how about neither!

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