How Good are Consumer Reports' Recommendations of Mutual Funds?

msf

Journal of Investing (Spring 2013) paper by Thomas Kreuger and C. Edward Chang.
http://www.tamuk.edu/cba/research/documents/JOI Article.pdf

Apparently much better than I would have thought (I was not particularly impressed with their lists when CR published them).

From the summary in the Journal's table of contents:

CR ... provided readers with mutual fund recommendations in 2005 and 2007. ... Examination of raw returns, risks, and risk-adjusted returns indicate that CR's choices outperformed mutual funds, in general, and index funds over the subsequent five years. ... CR's relative success was especially good during the 2008 recession.

Ted

Dear msf: Here are their choices for 2013. The article was written on February 10, 2013
Regards,
Ted
http://www.marketwatch.com/story/consumer-reports-flags-top-fund-picks/print?guid=E3F73C78-9856-44BB-9E63-B945DF6693AC

catch22

Morn'in Ted,

The linked article is dated; Feb. 10, 2003.

Take care,
Catch

Ted

Reply to @catch22: So What ?

catch22

Well, okay then. Apparently an article typo. Have a good remainder............

Graciously,
Catch

Ted

Reply to @catch22: I going to have to reassess your role as MFO's official greeter. No more Mr. Nice Guy with you. "The linked article is dated Feb. 10.2013", what a stupid statement. Your on my ignore list for the remainder of 2014. Do you realize this board can get along just fine without you !!!!

MikeM

Actually, showing choices from 2003 now is much more interesting. They recommended some pretty good funds 10 years ago including Yacktman, Delafield, Mairs and Power, TRP mid cap growth, Buffalo small cap. Of course they recommended a couple stinkers too, CGM Focus for example. But for the most part they did pretty well in forecasting good funds back in '03.

msf

Not a typo. The 2003 Marketwatch article references a report in the March edition of CR. There is no mutual fund article in the March 2013 edition. BUFSX was not a "newcomer" (as described in the article) in 2013.

CR changed its methodology after 2003, so the paper I linked to critiquing the quality of CR's selections would not apply to the 2003 list. (Responding to Ted's question of why the date would matter.)

From CR (1/8/2007): "CR first rated stock mutual funds [in 2005] by focusing on how often the fund beats its stock index rather than by how much, the system has proved effective. ..."
http://pressroom.consumerreports.org/pressroom/2007/01/consumer-reports-rates-the-60-most-consistently-successful-stock-mutual-funds-open-to-new-investors.html

CR apparently placed more emphasis on risk than absolute return.

catch22

Hi Ted,

Apparently a pc browser problem here.

This is what I see at the beginning of the article:

FundWatch

Feb. 10, 2003, 10:04 p.m. EST

Best buys

Consumer Reports picks top funds in their class

By Jonathan Burton, CBS.MarketWatch.com

The author notes: "Buffalo Small Cap (MFD:BUFSX) , a promising newcomer that buys shares of smaller companies." This wording relates to the inception date for this fund of; 4-14-1998.

Hey, tis not a big deal; and surely not worth blowing out a heart valve.....

Take care of you and yours,
Catch

E.O.M.

Ted

Reply to @catch22: You are correct, my mistake. I saw 2013 instead of 2003, I sincerely apologize to you, to much bubbly last night. You now have your greeters job back.
Happy New Year
Ted

Ted

Reply to @msf: Index Universe.Com slant on Consumer Reports fund selection process. 2/2005
Regards,
Ted
http://www.indexinvestor.com/Free/consumerReports.php

davidrmoran

Reply to @Ted: Whoa, easy, self-appointed cop. What he actually said was (and which you misread) is in fact the case as of 11a ET NY day: 'Feb. 10, 2003, 10:04 p.m. EST'

[Deleted User]

The user and all related content has been deleted.

cman

Reply to @Maurice: Unless you are a washing machine or dryer enthusiast in which case you would rather use CR for cars or something else.

Seems typical for CR recommendations. If you were a smart or informed consumer in an area, you can usually do better than CR recommendation in that area while others might do worse. Since, no one can be smart/informed in every area or may not have the time....

Ted

Reply to @cman: I agree, CR is the last place I'd look for financial advice.
Regards,
Ted

cman

This brings up an interesting question. How long is a mutual fund recommendation valid for? 3 years? 5 years? 10 years?

Other than index funds, nothing remains the same. Even index funds evolve as ERs change, ETFs have emerged over mutual funds with some advantages, etc. Certainly allocation decisions between asset classes change over time and new asset classes indices come in. The point being that a portfolio is never constant over a period of time in type or nature of funds even for responsible and prudent investing.

For any actively managed fund, more things can change.

Looking back at my history, my selection of funds have certainly changed over time but this doesn't mean the initial selection was bad or flawed. None of those selections disintegrated to regret having made the choice, but most have been replaced over time as they changed their managers or their investment thesis changed or the world changed around them or the manager just got burnt out or the fund became too big to be as good, etc.....

Doesn't mean one has to be a trend junkie or a performance chaser. I would think the normal for any investment portfolio is to look over your funds every year or two or three and re-evaluate funds based on the situation at that time. Some funds will continue and may stay for decades, some go much sooner. No way of predicting. But it is the selection criterion that determines whether you are doing OK even if individual funds don't last for 5-10 or more years in a portfolio.

In that context, do these kinds of looking back at selections made 5 years ago or longer, make any sense? Does it say anything about the selection criterion? I would say most of the funds holding up vouches for the selection criterion but not all of them doing so doesn't necessarily imply a bad selection at that time.

davidrmoran

Reply to @Ted: You guys have not read it closely enough, I suggest, and may be reacting in kneejerk fashion. As with wine and coffee, e.g., they turn to outside experts, I believe. (Not like their car or washer testing at all, in other words.) Their advice historically has been perfectly fine, no worse than what you get with any similar Kiplinger or MSN or USNews and other such. SSHFX was a winner long ago, for just one example I remember.