Following a recent post on the fabled Sequoia Fund's acceptance of fund inflows from new investors, my post was met with some ire, presumably from Fund employees or long time holders that have some emotional attachment to the investment. In order to address the most common themes, I have performed a deeper, more thorough analysis on the Sequoia Fund's recent performance and why its emergence as an open fund should be met with a yawn.

Timber!

In order to maintain a baseline comparison horizon, I will maintain the same 5-year timeframe I utilized in my initial post. The Fund and its proponents oft refer to the returns since 1970 trouncing the indices, but let's face it: The genius behind the fund is now deceased and the prior 5 year period is much more relevant than our parents' generation return period (anyone remember the Magellan Fund?).

So, right from the Prospectus, the Fund was trounced miserably by the S&P500 in 3 of the past 5 years and only marginally exceeded the S&P500 returns in 2 of the past 5 years. On average, the Sequoia Fund returned 9.26% vs. 13.15% for the S&P500. This is an average net deficit of close to 4% per year.

Source: http://www.sequoiafund.com/investment_return_table.htm

But wait...it gets better.

One of the naysayers out there highlighted that my analysis was flawed in that it did not account for the dividend payments from the Sequoia Fund. Well, the S&P500 stocks have dividends too, right? To put to rest any further quarrels, I compared the returns of the two funds starting with the NAV exactly 5 years ago tonight, added back in the dividends paid over that period (if I were a real stickler, I would assume the dividends were reinvested at the then current NAV and adjust the NAV for each subsequent period post-div, but the exercise would take me an extra hour of effort to arrive at the same conclusion since the same method would be followed for the S&P500 Fund and in the end, the dividend issue is comparable for both funds. Well, actually, since the largest dividend payment from the Sequoia Fund was made in 2007, the present value of the dividends is actually loaded to the recent year 2007, as opposed to an even spread in the S&P500, so this further diminishes the argument in favor of the Sequoia Fund) and showed that even factoring in dividend payments, the Sequoia Fund still performs miserably compared to the benchmark index.

Note that the Holding Period Return over the prior 5 year period is 16.48% for the Sequoia Fund vs. 63.24% for the S&P500. Would you pay an additional 1% in fees annually for this kind of performance? You tell me.

For a look at the post that started it all, plus a recommended top fund, click here.