On the 5-year cheat sheet, only one fund, Dodge & Cox Stock (DODGX), posted positive incremental returns on both nominal and risk-adjusted returns. While DODGX passed the AMVR screen on nominal returns, the fund failed to pass the AMVR screen on a risk-adjusted basis due the combination of a relatively high standard deviation (15.99) and a high r-squared/correlation number (97), resulting in an extremely high correlation -adjusted/Active Expense Ratio score (8.77).

InvestSense calculates AMVR using a fund’s correlation-adjusted incremental costs (using Ross Miller’s Active Expense Ratio metric) and risk-adjusted incremental returns (using Morningstar’s risk-adjusted return methodology), based upon the belief that such data provides a more accurate evaluation of a fund’s prudence.

The same results hold true on the 10-year AMVR cheat sheet. The results on both cheat sheets illustrate the importance of factoring in r-squared/correlation of returns. Using DODGX as an example, its r-squared of 97 suggests that a fiduciary could achieve 97 percent of DODGX’s return for the much lower cost of the benchmark index fund, in this case Vanguard’s Large Cap Growth Index Fund, Admiral shares. As a result, a fiduciary would be effectively paying a much higher expense ratio for the risk-adjusted incremental return, as shown in both charts.

The data shown covers the respective time periods, ending on 3/31/2022. The benchmarks used are the Admiral shares of the Vanguard funds comparable to the referenced funds’ Morningstar asset category: Vanguard Large Cap Growth Index Fund (VIGAX), Vanguard Large Cap Value Index Fund (VVIAX), and Vanguard Large Cap Blend Index Fund (VFIAX).