How do some of the market's most recognizable active mutual fund families stack up to a comparable passive counterpart? To explore that question, I'll continue my evaluation of active fund performance with an in-depth look the Hartford family of funds to determine whether the firm adds value for investors.

Why Hartford? Aside from its prominent position in the mutual fund marketplace, financial advisors have said they are often asked by investors about funds that Hartford offers.

By way of background, Hartford in February was ranked 28th (out of 48 firms) on Barron's annual list of best-performing mutual fund families for the latest 10-year period. For the latest five-year period, Hartford was ranked 19th (out of 56 fund families). And in the one-year rankings, based on 2014 performance, the firm placed 30th (out of 65 fund families), although one-year performance really should be treated as anecdotal in nature.

Yet despite these mediocre rankings, Morningstar reports that, as of July 2015, the Hartford family of mutual funds had $100 billion in assets under management. The question is: Has Hartford added value for its investors?

**Hartford Vs. Vanguard And DFA**

To find the answer, I'll compare the performance of Hartford's actively managed equity funds to the similar offerings from two prominent providers of passively managed funds, Dimensional Fund Advisors (DFA) and Vanguard. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)

To keep the list to a manageable number of funds, and to ensure I examine long-term results through full economic cycles, I will analyze the 15-year period ending June 30, 2015. I'll use the lowest-cost shares available for the full period when more than one class of fund is available. And in cases where Hartford has more than one fund in an asset class, I'll use the average return of those funds in my comparison.

The table below shows the performance of 10 funds offered by Hartford in five domestic equity asset classes and one international equity asset class:

Fund (July 2000-June 2015) | Symbol | Expense Ratio (%) |
Annualized Return (%) |

U.S. Large-Cap Growth |
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Hartford Capital Appreciation HLS Fund | HIACX | 0.66 | 7.6 |

Hartford Core Equity Fund | HGIYX | 0.49 | 4.9 |

Hartford Disciplined Equity HLS Fund | HIAGX | 0.75 | 4.9 |

Hartford Growth Opportunities HLS Fund | HAGOX | 0.64 | 5.9 |

Hartford Average | 0.64 | 5.8 | |

Vanguard Growth Index Fund | VIGIX | 0.08 | 3.3 |

U.S. Large-Cap Blend |
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Hartford Stock HLS Fund | HSTAX | 0.50 | 3.5 |

DFA U.S. Large Company Portfolio | DFUSX | 0.08 | 4.3 |

Vanguard 500 Index Fund | VFINX | 0.17 | 4.2 |

U.S. Large Value |
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Hartford Dividend and Growth HLS Fund | HIADX | 0.67 | 7.6 |

DFA U.S. Large Cap Value III Portfolio | DFUVX | 0.13 | 9.3 |

Vanguard Value Index Fund | VIVIX | 0.08 | 6.0 |

U.S. Small Blend |
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Hartford Small/Mid Cap Equity HLS Fund | HMCSX | 0.85 | 7.1 |

DFA U.S. Small Cap Portfolio | DFSTX | 0.37 | 9.3 |

Vanguard Small Cap Index Fund | VSCIX | 0.08 | 8.5 |

U.S. Small-Cap Growth |
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Hartford Small Company HLS Fund | HIASX | 0.71 | 6.0 |

Hartford Small Cap Growth HLS Fund | HISCX | 0.65 | 4.7 |

Hartford Average | 0.74 | 5.5 | |

Vanguard Small Cap Growth Index Fund | VSGIX | 0.08 | 8.6 |

International Large Growth |
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Hartford International Opportunities HLS Fund | HIAOX | 0.73 | 4.4 |

Vanguard International Growth Fund | VWIGX | 0.47 | 4.2 |

Following is a synopsis of the most important takeaways from this data:

- In the six asset classes for which there are comparable funds from Vanguard, the Hartford funds outperformed in three and underperformed in three.
- In each of the three asset classes for which there are comparable DFA funds, the Hartford funds underperformed.
- A portfolio of Hartford funds, equal-weighted in the six asset classes for which there are comparable Vanguard funds, returned 5.7% a year. The average expense ratio was 0.68%. An equal-weighted portfolio of Vanguard funds in the same six asset classes returned 5.8% a year, outperforming the comparable Hartford portfolio by 0.1 percentage point a year. The average expense ratio for Vanguard's funds was 0.16%. The slight underperformance of the Hartford portfolio (0.1% percentage point) was well exceeded by the difference (0.52 percentage points) in the portfolios' average expense ratios.
- In the three asset classes for which comparable DFA funds are available, an equal-weighted portfolio of Hartford funds returned 6.1% a year. The average expense ratio was 0.67%. An equal-weighted portfolio of DFA funds in the same three asset classes returned 7.6% a year, and outperformed the comparable Hartford portfolio by 1.5 percentage points a year. The DFA portfolio's average expense ratio was 0.19%. Here, underperformance of the Hartford portfolio (1.5 percentage points) was more than three times as great as the difference (0.48 percentage points) in the portfolios' average expense ratios.

**Factor Analysis**

I will now take another look at the performance of the nine domestic funds from Hartford that I evaluated above using the analytical tools and data available at Portfolio Visualizer. Factor analysis provides important additional insights because Morningstar asset class categories are very broad, and actively managed funds often style-drift.

The table below shows the results of the three-factor (beta, size and value), four-factor (adding momentum) and six-factor (adding quality and low beta) analysis for the firm's U.S. funds. The data covers the period July 2000 through June 2015. Each t-statistic is in parentheses.

Fund (July 2000-June 2015) | Symbol | 4-Factor Annual Alpha (%) |
4-Factor Avg. Alpha (%) |
6-Factor Annual Alpha (%) |

Hartford Capital Appreciation HLS Fund | HIACX | -3.9 | -3.7 | -3.2 |

T-Statistic | -1.3 | -1.2 | -1.0 | |

Hartford Core Equity Fund | HGIYX | 0.6 | 0.6 | -0.1 |

T-Statistic | 0.9 | 0.8 | -0.2 | |

Hartford Disciplined Equity HLS Fund | HIAGX | -0.1 | -0.1 | -1.4 |

T-Statistic | -0.1 | -0.1 | -1.1 | |

Hartford Growth Opportunities HLS Fund | HAGOX | -3.0 | -3.9 | -1.7 |

T-Statistic | -1.1 | -1.5 | -0.6 | |

Hartford Stock HLS Fund | HSTAX | -3.0 | -2.6 | -3.9 |

T-Statistic | -1.9 | -1.7 | -2.4 | |

Hartford Dividend and Growth HLS Fund | HIADX | 1.7 | 1.7 | 0.4 |

T-Statistic | 0.8 | 0.8 | 0.2 | |

Hartford Small/Mid Cap Equity HLS Fund | HMCSX | -6.0 | -6.8 | -9.0 |

T-Statistic | -2.1 | -2.5 | -3.0 | |

Hartford Small Company HLS Fund | HIASX | -4.5 | -5.8 | -5.2 |

T-Statistic | -1.7 | -2.2 | -1.9 | |

Hartford Small Cap Growth HLS Fund | HISCX | -6.3 | -7.4 | -6.3 |

T-Statistic | -2.2 | -2.6 | -2.2 | |

Average Alpha | -2.7 | -2.4 | -3.4 |

When we examine the results from the three-factor analysis, we find that just two of the nine Hartford funds generated positive alphas, with the average annual alpha being -2.7%. Two of the nine funds showed a statistically significant alpha (at the 5% level), and they were both negative.

When we look at results from the four-factor analysis, we again find that just two of the nine Hartford funds generated positive alphas. The average alpha was -2.4%. Three of the nine funds showed statistically significant alpha (at the 5% level), and again, each was negative.

When we include all six factors in our analysis, only one of the nine funds showed a positive alpha (and it was just 0.4%). Eight of the nine funds had negative alphas, three of which were statistically significant at the 5% level. The average annual alpha was -3.4%.

**Reviewing Results**

The table below shows the performance of portfolios from the other leading mutual fund families I have evaluated relative to the performance of our comparable portfolios from Vanguard and DFA, as well as the results of their factor analyses.

Note that with TIAA-CREF, I did not originally perform the factor analysis. Thus, the data wasn't in the original article. However, I've now added that data so that we have the same analysis for each of the fund families.

Fund Family | Portfolio Return Vs. Vanguard |
Portfolio Return Vs. DFA (%) |
3-Factor Avg. Alpha (%) |
4-Factor Avg. Alpha (%) |
6-Factor Avg. Alpha (%) |

TIAA-CREF | -0.4 | -0.4 | 0.2 | 0.2 | -0.1 |

Goldman Sachs | -0.5 | -2.0 | 0.4 | 0.3 | -1.4 |

JPMorgan Chase | -0.1 | -0.9 | 0.5 | 0.2 | -0.8 |

American Funds | 1.3 | 0.1 | 0.6 | 0.7 | 0.8 |

Gabelli Funds | 0.1 | -0.2 | 0.5 | 0.6 | -0.4 |

Waddell & Reed | -0.1 | -0.6 | 0.6 | 0.4 | 0.8 |

John Hancock | -0.2 | -0.4 | 0.0 | 0.0 | -1.3 |

Morgan Stanley | -1.2 | -0.9 | 0.1 | -0.4 | -0.4 |

Wells Fargo | 0.4 | -0.3 | 0.6 | 0.2 | -0.4 |

Russell | -1.1 | -1.4 | -2.2 | -2.4 | -3.6 |

SEI | -1.8 | -2.0 | -0.9 | -1.0 | -1.8 |

Hartford | -0.1 | -1.5 | -2.7 | -2.4 | -3.4 |

Average | -0.3 | -0.9 | -0.2 | -0.4 | -1.0 |

Following are the highlights from the table:

- Of the 12 actively managed fund family portfolios, just three outperformed the comparable Vanguard portfolios, and in one case, the outperformance was just one-tenth of a percentage point. The average for all 12 was an underperformance of 0.3 percentage points.
- Compared to the DFA portfolios, just one of the portfolios from active fund families managed to outperform, and that was by the slimmest of margins, just 0.1 percentage point. The average underperformance was 0.9 percentage points.
- The three-factor regressions produced an average alpha for the 12 active fund families of -0.2%. The four-factor regressions produced an alpha of -0.4%. And the six-factor regressions produced an alpha of -1.0%.
- The only actively managed fund family in the group that added value compared with both Vanguard and DFA (though by the smallest of margins in the second case) was American Funds. American also showed positive alphas relative to each of the factor regressions. While the Waddell & Reed funds also showed positive alphas relative to each of the factor regressions, their funds underperformed comparable portfolios from both Vanguard (by the slimmest of margins) and DFA.

Overall, the evidence is pretty compelling that even a great many leading mutual fund families have had an extremely difficult time outperforming low-cost, passively managed alternatives.

In addition, they have had a difficult time generating risk-adjusted alphas. This is pretty strong evidence that, while the market may not be perfectly efficient, investors in actively managed funds are highly unlikely to benefit from efforts to exploit any inefficiencies that do exist.

**Disclosure: **The included data and analysis is a summary of 11 other pieces related to an ongoing series evaluating actively managed mutual fund families. A complete list of the other articles in this series can be found by searching author Larry Swedroe at Advisor Perspectives. The corresponding portfolios are provided for informational purposes only, were constructed specifically for this review and are not portfolios that Buckingham recommends. The returns data included is from Morningstar, and the factor analysis tool was provided by Portfolio Visualizer. Performance is historical and does not guarantee future results. Information is from sources deemed reliable but its accuracy cannot be guaranteed. It should not be assumed that any of the securities listed were or will prove to be profitable.

*Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.*