Calamos portfolio manager Jeff Miller said the fund does have an approach geared to downside protection, but in general, the more active a fund is, the more it has underperformed this year, and that can be seen in the relatively weak performance of equity long/short hedge funds, too.
"Lack of volatility in the markets, and a market that has pretty much gone straight up for a while now," are the main reasons for the active management lag, he said.
Speaking to the Calamos fund performance specifically, Miller cited the strong performance in the utility sector (up 18.4 percent year-to-date through June 30). Utilities are a sector that the Calamos fund has historically avoided and does not find attractive on a long term basis—it's had no exposure to utilities for many years. "In the first half of the year, investors were searching for safety in stocks with high yields, and utilities were their first choice," Miller said.
In the financials sector, 10 of the top 11 performers year-to-date have been REITs. The Calamos fund is overweight financials but does not own any REITs at the moment because it thinks REIT are fully valued and a pullback is required before they will be worth buying again.
"Errors of omission were the most detrimental to performance," Miller said. He echoed the concern raised by Rosenbluth about finding entry points in a rising market, saying, "We held cash in the fund waiting for opportunities to buy stocks on a market decline, and the decline never came."
David Mertens, Jensen managing director, said that index funds may be on top now, but the extended rally in stocks also makes the passive approach vulnerable over the longer-term. Mertens cited S&P Earnings and Dividend Quality Rankings: "A+" rated companies in the S&P 500 rose by 3.3 percent in the first six months of 2014; by contrast, companies rated "B" and "C" rose by more than 10 percent.
"Favoring higher quality businesses, in our view, is the right long term recipe for our investors, but has not been rewarded in the current market environment," Mertens said. He also said index funds don't provide risk management and may be exposing investors to threats they don't understand. "The current market rally, measured by the S&P 500, has lasted 1,000 days without a correction."
The best-performing large-cap fund in 2014 has been the Sterling Capital Special Opportunities Fund (BOPAX), up 13.3 percent in the first half of 2014. The fund's largest sector weighting is in information technology (34 percent of assets). The fund also had a recent 4 percent weighting inHalliburton, a stock that rose more than 40 percent in the first half of 2014.
Other top-performing large-cap funds at the mid-year mark (6/30) included:
- TCW Concentrated Value Fund (TGFVX): 11 percent return
- Vanguard PRIMECAP Core Fund (VPCCX): 10 percent return (closed to new investors)
- Fidelity Strategic Dividend and Income Fund (FSDIX): 9.5 percent return