Portformer chart of small cap funds

Case Study: Moving beyond the Fund Screener

Below is a piece written by Andrew Kebalka, a member of the Portformer team, who outlines his process for improving his Roth IRA using the variety of tools at his disposal. Please note that Portformer is currently only available to professional investors and financial advisors and nothing in this article is neither investment advice nor a recommendation for or against a particular security.

However, if you are an individual interested in using Portformer to determine if your financial advisor is earning their fees, please visit https://savewith.portformer.com/ to be added to the waitlist and learn more about the early 2020 product release designed to help individuals better hold their financial advisors accountable.

Discovering better Small Cap Value Exposures

by Andrew Kebalka

I am 25 year old looking to add small cap value exposure to my Roth IRA. As a former trader, employee of a mutual fund and as a CFA candidate, I do believe in the value of active management. As part of my investment process, I wanted to consider several factors when evaluating the large number of ETFs and mutual funds to choose from. Beyond looking at fund volatility, max draw-down, Sharpe ratio, and returns, I want to discover funds that are low cost and are good at what they do. However, I am willing to pay slightly more for the return characteristics I favor.

Jumping into a screen…

Morningstar’s screening tool is my preferred method of filtering the actively managed universe. The criteria is used is narrowed to small cap value funds that have consistently provided returns above their peers over 1, 3, 5, 10-years and YTD. I have no preference on characteristics like average market cap, assets, turnover, tenure, etc. Accessing a superior return stream is my end goal for this component of my portfolio. However, I will look to minimize my risk later in the process once I have identified a top grouping of funds.

Post-Screen Top Results

This particular screen returned these top 5 funds from a variety of investment managers:

  1. American Century Small Cap Value A (ACSCX)
  2. Delaware Small Cap Value A (DEVLX)
  3. Boston Partners Small Cap Value II I (BPSIX)
  4. CornerCap Small-Cap Value Investor (CSCVX)
  5. Dunham Small Cap Value A (DASVX)

Are any of these top funds providing a unique return stream?

As an employee of Portformer, I naturally wanted to see how these 5 funds stacked up to their corresponding ETF alternatives.

Utilizing Portformer, I was able to identify the top ETF alternatives (10 for each mutual fund) and could conclude that there were many compelling alternatives. However if one of these funds had been a “Portformer” (meaning there was a ‘checkmark’ and not a score present), there may have been reason to take a deeper look at that particular fund. The motivating reason for this would be to identify whether a unique return stream was available that I would not be able to attain elsewhere in the market.

Now, which fund is a best fit?

Having identified mutual funds with superior return streams within the small cap category, I return back to my favored characteristics (volatility, max draw down, Sharpe ratio, and returns) to identify which of the top mutual fund options and ultimately ETF alternatives would be a best fit for my portfolio.

Comparing the return streams of the top mutual fund I was able to identify that each fund followed a relatively similar path. This gave good reason to drill down into each option further.

American Century Small Cap Value A (ACSCX) and Dunham Small Cap Value A (DASVX) stood out upon closer look when reviewing their 5-year statistics among others. ACSCX had provided the highest annualized return with the highest Sharpe ratio within the selection and DASVX had a relatively low max drawdown versus it’s peers. Otherwise the other 3 selections had similar characteristics to the overall grouping.

Wishing for the best of both worlds in the case of ACSCX and DASVX, and with the surety of obtaining the best overall quality, I turned to the list of alternatives given by Portformer for each of those funds.

Top Portformer Alternatives for ACSCX
Top Portformer Alternatives for DASVX

While sorting each of the two lists of alternatives for return, volatility, Sharpe ratio, max drawdown, and net fees a number of the suggestions emerged as leading candidates.

Looking closer, a few of those alternative candidates were shared on both the lists of ACSCX and DASVX.

  • Vanguard S&P Small-Cap 600 ETF (VIOO)
  • Invesco S&P SmallCap Low Volatility ETF (XSLV)
  • WisdomTree US MidCap Earnings ETF (EZM)

Making a selection

Ultimately, the Invesco S&P SmallCap Low Volatility ETF (XSLV) met the expectations I had entering into my selection process while capturing the favorable characteristics of both of the top mutual funds. XSLV had a higher annualized return and Sharpe ratio with lower volatility and max drawdown than either of the two original funds. Additionally, I was able to capture this exposure for over 100bps less than either of the mutual funds.


Morningstar’s screening tool undoubtedly set the stage for my selection. Admittedly, there are a number of ways to critique this first step in my process, such as starting with ETFs, considering risk measures from the start, etc. However, I was comfortable setting those pieces aside in order to ensure I started my search by ensuring I was looking within the top cohort of small cap value returning funds.

Introducing Portformer into the process provided a smooth transition into gaining the deeper clarity needed to guide my discovery towards funds with higher quality. It gave me the piece of mind that I evaluated all top comparable opportunities within the fund universe without the possibility of any unintentional bias.

Andrew Kebalka

Customer Success | Research | Business Development

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