Qualitative Guidelines for Mutual Fund Selection
by John Deysher and Michael Walters
Many articles exist on AAII and other investor education sites on how to use financial data to pick solid mutual funds.
Using historical return data, expense ratio information, peer rankings and risk/return metrics is relatively straightforward. Annualized average returns, standard deviation, and three-, five- and 10-year performance are well understood and widely published.
But what comes after screening based on quantitative metrics? What about the other side of fund selection—the qualitative criteria that can help investors better understand and select investments to fill their portfolios? Many of these questions require reading prospectuses and manager letters and digging into a few years’ worth of data to fully comprehend. This can be a bit more laborious than picking funds based on a “top 10” list, but the time spent is well worth the effort. Let’s talk about qualitative guidelines for fund selection—some of the factors that should be considered that an investor can’t assess with a calculator or spreadsheet.
...To continue reading this article you must be an AAII member.
Michael Walters is an analyst with the Pinnacle Value Fund, a diversified, SEC-registered mutual fund specializing in the securities of small- and micro-cap companies. He is a CFA charterholder, and he lives and works in New York City.