by Charles Rotblut
Previously, as some of you may remember, we published our annual guide as a book. Though the old format served us well, there was room for improvement. The production process took longer, meaning the book could not be sent out until March. Comparing multiple funds was difficult. It was harder to highlight which funds ranked in the top quartile according to specific criteria, such as bear market performance.
By making the guide a special Journal issue, we are able to create a better product. The guide is in your hands several weeks earlier than last year. You can compare multiple funds on a single page. A combination of color and bold type helps you identify which funds might be right for you, and which may not. Our expanded coverage and table format make it easier to analyze the performance of the funds you own and measure how they have performed relative to their peers. There is even better integration between the printed Journal and the online version than ever before.
To make analysis easier, average category data is presented at the beginning of each list of related funds. This allows you to quickly see how a fund compares against the category and how the actual category performed. These comparisons range from three-year, five-year, and 10-year performance to other useful criteria such as bull and bear market returns, average yield, tax efficiency and portfolio turnover. (The online version also includes fund performance for each of the last 10 years, fund portfolio characteristics, fund management tenure, minimum purchase requirements and plus many other items.)
Most importantly, we are including more funds than ever before. Five new categories have been added: long-short, contra market, miscellaneous sector, convertible bond and international currency bond. In addition, popular funds that may of you own, but are closed to new investors, are now covered. (The printed Journal contains more than 700 funds and the online version covers more than 1400 funds.)
Despite all of these alterations, the primary purpose of this guide remains unchanged: provide information on the funds that are of the most interest to investors. These are funds with historically superior returns in their classes, low expenses, and no or low loads that are available directly from the fund family.
The one thing we could not provide, however, was an update on Jones v. Harris Associates. This case, argued before the U.S. Supreme Court in November 2009, questions whether mutual funds have the right to charge shareholders varying fees based on the size of their accounts. The ruling, when issued, could potentially impact what funds charge in the future.
When going through the data in this guide, keep in mind that performance is only one aspect of evaluating a fund. For example, if you intend to hold the fund in a taxable account, the tax-cost ratio should be considered. The risk index should be a consideration when analyzing funds and for those who seek more conservatively managed funds. Expenses, loads and 12b-1 fees reduce the actual returns realized.
As always, understand that past performance is no guarantee of future returns. There are many good funds available, but not every good fund is suitable for every investor. Consider your own goals and financial situation before investing in a mutual fund or security.
Many people contributed to the creation of this years guide. John Bajkowski played a key role in the fund analysis format and supervised the data collection and verification. Andrew Lautner created the tables and designed the front cover. Jean Henrich and Alyna Johnson provided copy editing and proofing. All assisted with the display of the data.
We will return to our traditional format for the AAII Journal in March. Among the articles we are working on for that issue is a discussion of the top mutual funds over the past five years.
Wishing you prosperity,
Editor, AAII Journal