How to Rate a Mutual Fund: Personalizing the Star System
by John Markese
Toss the stars, chuck the checkmarks, cast aside the letter grades, and ignore any other mutual fund ratings that come down to an all-in-one rank.
Why?
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For one, you can’t really understand a fund, your investment, by staring at a checkmark or by gazing at the stars.
Another reason to jettison rating symbols is that they are all based on weighting systems that are unlikely to reflect your specific financial/investment profile: factors that are personal and unique, such as risk tolerance, investment horizon, financial goals, and tax situation.
Finally, the monolithic ranking icons may be overly seductive as investors embrace them as crystal balls when they are really more akin to rearview mirrors.
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Discussion
Once additional criteria I look for is whether the fund manger is invested in the fund. I prefer funds whose mangers have their own money invested in the fund.
posted about 1 month ago by J Morlock from New Jersey
cut the universe by:
Expense ratio level, minimum manager tenure,load level and category rank.
Then use a three legged stool approach:
Performance: return level over at least 5 years
Risk: Use standard deviation and other risk criteria.
Management: Expense ratio,turnover, Manager tenure and analyst ratings.
Allocate 33% of the score to each leg to identify the strongest funds in each category.
This works for me !
posted about 1 month ago by Kenneth Hancock from New York
good article but not enough focus on the importance of Management tenure and how rigidly the fund adheres to its classification. Too often a fund strays from its intended classification.
posted about 1 month ago by Steve Daniels from Connecticut
The AAII portfolio includes ETFs and had a 15.5% return: http://www.aaii.com/model-portfolios/fund. It has around 10 funds, mostly domestics (large, small, midcap), a REIT, EM, junk bonds, and an optional short term bond fund. There is no long term bond fund or gold/commodities.
I prefer an all ETF portfolio based on 3-month and 6-month risk-adjusted returns with no rebalancing, meaning put more money into funds that are going up and less into funds that are in decline.
posted about 1 month ago by Ron from Georgia
