• Mutual Funds
  • 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.

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    John Deysher is president and portfolio manager of the Pinnacle Value Fund, a diversified, SEC-registered mutual fund specializing in the securities of small and micro-cap firms. He is a CFA charterholder and has managed equity portfolios for over 30 years. He lives and works in New York City and may be reached at deysher@pinnaclevaluefund.com.
    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.


    Discussion

    Michael Cochran from MA posted over 2 years ago:

    Great communication ... Making the complex simple and easy to digest. Thank you gentlemen !


    Brigitte Dewolfe from OR posted over 2 years ago:

    Being an amateur, I did not realize that the size of a fund and its expense ratio may be related. Thanks for pointing that out.


    Abner Sokol from PA posted about 1 year ago:

    YOUR ARTICLE ABOUT QUALITATIVE GUIDELINES FOR MUTUAL FUNDS,TO ME,DOES NOT CLEARLY EXPLAIN THE DIFFERENCE BETWEEN QUANTITATIVE AND QUALITATIVE GUIDELINES.
    ARE YOU TRYING TO SAY THAT EXPENSE RATIO,MANAGER COMMUNICATION,ETC ARE QUALITATIVE & PERFORMANCE,RISK ETC.ARE ARE QUANTITATIVE?


    Tim Dickerson from OH posted 10 months ago:

    I am a buy and hold mutual fund holder but am seeing the keen interest in using computer analysis - smart beta, quantitative analysis, robo funds management being used in stock selection and fund management. Should I allocate a part of my portfolio to this new approach if so how much ?


    Charles Rotblut from IL posted 10 months ago:

    Tim,

    Wall Street is constantly coming up with new ideas. Some are good, but many aren't. I'd evaluate any specific investment or service you are interested in closely to determine how attractive it is and whether or not it matches your long-term investment goals.

    -Charles


    Michael Pietrusik from NY posted 7 months ago:

    who buys mutual funds in 2016. not i. give any advisor this bet. you design a portfolio of mutual funds ie non vanguard . let me invest in corresponding etf's or index funds. lets see who wins 15 yrs from now. they decline...... like 2 equally fast runners racing 100 yrs. one runner starts at the 100 yrd line. the other starts at the 97.5 yd line . guess who wins most of the time. give me a break.expenses ---you die a slow death pretty simple


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