The Copley Fund No Load Is A Top-Notch Fund, But It Will Cost You

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About: Copley Fund No Load (COPLX)
by: Andre Waldron
Summary

The fund's advantage in utilities holdings has boosted its overall performance in the Large Value Category.

The outlook for the utilities sector in 2019 is very promising and bodes well for the Copley Fund No Load.

The fund has an above-average expense ratio as opposed to its benchmarks for the past several years.

Like a beautiful diamond on an engagement ring, the Copley Fund No Load (COPLX) stands out above the rest of the pack when it comes to the Large Value Category. The Copley Fund No Load (COPLX) is ranked No. 1 in the Large Value category with a YTD return of 15.15%. This fund has distinct advantages in key areas. One of those areas is in the market capitalization in which the fund has a distinct advantage on large caps vs the benchmark and category average.

Size

% of Portfolio

Benchmark

Category Avg

Giant

27.57

45.94

68.48

Large

55.54

33.17

13.13

Medium

14.31

19.85

16.61

Small

2.58

1.03

1.68

Micro

0.00

0.01

0.10

An even bigger story is told in the sector weighting of this fund. As you will see in the chart below, the fund manager clearly has a strategy that is bent towards a heavy ownership in the characteristically defensive utilities sector. Also, the fund benefits from no sensitive technology holdings and barely any industrial holdings in its sector. Additionally, there’s a sector weighting deficit in the financial services sector.

Sector

% Stocks

Benchmark

Category Avg

Utilities

57.27

5.95

4.53

Industrials

0.24

7.68

9.46

Technology

0.00

9.25

11.48

Financial Services

12.37

22.65

21.30

This fund has had a history of outperforming its sector when it comes to limiting losses during a time when its benchmark has not done so well. As you will see, COPLX has outperformed its benchmark in terms of downside capture ratio (DC Ratio) over the past fifteen years.

Fund

1-Year DC Ratio

3-Year DC Ratio

5 Year DC Ratio

10 Year DC Ratio

15 Year DC Ratio

COPLX

35.58

7.20

31.79

36.83

52.46

Large Value

94.53

99.92

105.61

106.07

104.19

Now it’s time to dig into the holdings that are driving this mutual fund. Not surprisingly, a lot of the main drivers of the Copley fund come from the utilities sector in terms of portfolio weight and/or YTD return. This can be seen below.

HOLDING

PORTFOLIO WEIGHT

YTD RETURN

SECTOR

NextEra Energy Inc (NYSE:NEE)

16.15%

13.43%

Utilities

DTE Energy Co (NYSE:DTE)

6.43%

3.88%

Utilities

Arthur J. Gallagher & Co (NYSE:AJG)

6.16%

17.19%

Financial Services

Verizon Communications (NYSE:VZ)

5.64%

8.90%

Communications

New Jersey Resources Corp NJR)

5.28%

15.62%

Utilities

Duke Energy Corp (NYSE:DUK)

4.56%

6.71%

Utilities

Eversource Energy (NYSE:ES)

4.32%

5.56%

Utilities

Sempra Energy (NYSE:SRE)

4.01%

3.68%

Utilities

Northwest Natural Holding Co (NYSE:NWN)

2.70%

4.01%

Utilities

American Electric Power Co Inc (NYSE:AEP)

2.67%

5.02%

Utilities

SCANA Corp (NYSE:SCG)

2.08%

25.37%

Utilities

FirstEnergy Corp (NYSE:FE)

1.55%

26.39%

Utilities

Utilities Sector Outlook

As a result of the fund’s major sector weight holding of utilities and its corresponding impact in the holdings above, it is important to take a look at the future outlook of the utilities sector.

It’s no secret that investors will run to the safe haven of the utilities sector if a bear market is on the horizon. The utilities market has consistently outperformed the S&P during times of market turmoil. In 2000, the utilities sector outpaced the S&P 500 by over 60%. The sector also outpaced the S&P by double digits during market downturns in 2004, 2005, 2007,2011 and 2014.

Charles Schwab appears to have considered such a possibility. In December 2018, Charles Schwab upgraded the outlook of the utilities sector from UnderPerform to Market Perform due to concerns of a near term peak in growth. The firm pointed to the recent decline of the Citibank Economic Surprise Index as an example of a slowdown in growth that could make the utilities sector more attractive.

Fidelity believes that the utilities sector is poised to be a market leader in 2019 due to the rise in volatility and enhanced concerns about the slowdown of the bull market.

But...

While the Copley Fund is an awesome fund, be prepared to pay a hefty price for it. The fund has typically had a higher than average expense ratio than the benchmark and category average. In the chart below, you can see that the Copley Fund has had a history of having a higher expense ratio than its benchmarks.

Category

2014 Expense Ratio

2015 Expense Ratio

2016 Expense

Ratio

2017 Expense

Ratio

2018 Expense

Ratio

COPLX Expense Ratio

1.60

1.80

1.33

6.99

1.55

Morningstar Category Average

1.08

1.07

1.06

1.03

1.03

Fee Level Comparison Group Median

0.95

0.92

0.90

0.89

0.88

Conclusion

I echo the sentiments of Fidelity and Charles Schwab. I feel that the U.S economy’s growth will continue to slow down and that the Copley fund will serve as a solid safe haven for investors primarily due to the increased attractiveness of the utilities sector. The fund’s strong sector weighting in utilities will continue to work to its advantage.

Investors will have to weigh the fund’s enhanced cost vs. the increased attractiveness of this fund. However, it’s hard to argue against the history of success of the utilities sector in market downturns. This fund may be worth the price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.