Markets

MFS: Does It Add Value?

By Larry Swedroe

Updated on: August 30, 2011 / 9:09 AM EDT / MoneyWatch

We continue our series on whether actively managed fund families add value by taking a look at the MFS family of funds.

In 1924, MFS established the first mutual fund, Massachusetts Investors Trust (MITTX). Today, MFS is one of the largest mutual fund families, with assets under management of almost $100 billion. It proudly states on its Web site: "Commitment to putting investors first remains evident in everything about the firm." It's safe to say that John Bogle, the founder of Vanguard and certainly the greatest advocate for individual investors we have, would take strong exception to that statement. The reason is that their average expense ratios (in the table below) are certainly not in investor's interests.

The MFS Web site also states: "We employ fundamental research to obtain firsthand knowledge of companies and in-depth quantitative research to develop a comprehensive understanding of all the analytics associated with a security." That sounds pretty unique, giving them a competitive advantage over other mutual fund families and hedge funds, doesn't it?

Using Morningstar data, we compared the returns of the MFS funds with funds from the same asset class of the two leading passively managed alternatives: Dimensional Fund Advisors and Vanguard. The period is the 10 years through June 2011.

An equally-weighted portfolio of MFS funds underperformed an equally weighted portfolio of DFA funds by 0.3 percent a year (8.2 percent versus 8.5 percent). However, the MFS funds did outperform an equally weighted portfolio of Vanguard funds, using only the asset classes where there were comparable funds, by 0.4 percent a year (7.3 percent versus 6.9 percent).

In terms of the ability to generate alpha over well-designed passively managed funds, there's no evidence to suggest that MFS adds enough value to overcome their high expenses. On the other hand, if we restrict the alternatives to pure index funds, MFS has added value. If this was a boxing match, we might call it a draw.

More on MoneyWatch:
Goldman Sachs: Does It Add Value? USAA: Does It Add Value? Legg Mason: Does It Add Value? Did John Bogle Get It Wrong? How to Build a Diversified Portfolio
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