David, your commentary this month included some outstanding discussion of M* sometimes bizarre and often inconsistent fund category decisions. I was struck by the later discussion of RSIVX, which M* considers a Multisector Bond fund, but which is run very similarly to OSTIX, which used to be in the Multisector Bond fund, but was moved to the High Yield fund category not long ago. But RSIVX remains in the Multisector category. When you read or listen to the managers of these two funds, they are managing their funds with very similar goals and with not-dissimilar tactics and holdings. Conversely, RSIVX, whose name includes Strategic Income, is not at all similar to GSZIX, BSIIX, LSBDX, and other Multisector bond funds.
This is important to know for a couple of reasonx, one of which is to point out M*'s continued inconsistency and apparent inability to evaluate similar funds using the same process, let alone consider what the managers are actually doing and what the fund prospectuses say. The other reason is to stress to investors to put M* star ratings and analyst ratings near the bottom of considerations when they make decisions on selecting funds. It is important for investors to actually read the fund prospectus, yes, read it! That is the only way, for example, that you will discover that John Osterweis pegs the performance of OSTFX to the S&P 500, NOT to the arbitrary benchmark and 'best-fit' index M* uses, even though M*'s own data indicates otherwise.
For better or worse, M* is THE source for fund data. But relying on M* for categorization, comparable indexes, and similar items, without reading fund prospectuses and annual reports, can lead to frustration and misplaced expectations. David's excellent March commentary is required reading.
Comments
There is a need for a comparitive analysis between funds, the tracking between the prospectus and what the fund actually delivers, etc that are not easily gleaned from reading the prospectus.
The prospectus is much more useful for financial advisors whose research time can be amortized over multiple portfolios than a single one. That is one of the values FAs can provide. It is also useful to understand funds that use special strategies or styles. I can't think of a fund I had to read the prospectus for to decide to invest in it.
A bad fund that is characterized/rated highly is more of a problem for the retail investor than a good mutual fund that is not discovered because of mis-characterization.
The catch with new funds seems to be how long it takes them to look at holdings and reconsider the original categorization. From complaints on the M* discussion board, it looks like they've pulled back on frequency of revising analyst reports, so they may be getting slower on category reconsideration too.
And of course the real problem with OSTIX's fit in the HY category is that there's no category that's a close match for the investment strategy -- short duration high yield.
The Fund seeks high current income and capital appreciation consistent with the preservation of capital by investing in investment grade and non-investment grade debt, preferred stock, convertible bonds, bank loans, high yield bonds and income producing equities (“the Securities”) that Cohanzick Management, LLC (“Cohanzick”), RiverPark Strategic Income’s Sub-Adviser, deems appropriate for the Fund’s investment objective.