What is your worst performing 1-5 Star fund?

bee

First I screen only 5 star funds that are offered NTF at my brokerage (USAA) with an ER (expense ratio) of 1.6% or less. Here is a list of the funds with the worst 1 year performance:

I own a number of these...maybe its time I add to them. The range is from -4.66% to -15.21%


Here is a list of the worst performing 4-5 star funds. The range is from -13.21 to -28.65


Here is the list of the worst performing 3-5 star funds. The range falls between -18.01% and -28.65 and 12/20 were 3 star funds.


Going one step further and including all 1-5 star funds the list produces 8/20 that are either 1 or 2 star funds. The range falls to -20.25% and -28.65.

fundalarm

and the purpose of this excercise is?

scott

The Cambiar funds continue to seem really hit and miss - either they outperform strongly or they're at the back of the pack. I own Janus Overseas and added to it at the end of last year. All of the energy and precious metals (and to a large extent nat resources, although agriculture has done well) stocks/funds have lagged the last year or more. I remain skeptical if precious metals stocks will ever realize their value. I think diversified natural resources plays are a good choice at this point if one wants to focus on a sector that's really lagged the Chipotle's and whatnot.

I continue to like EM, although I think it's not surprising to see one or more individual countries lag at times (India lately). The two EM products that I think are particularly disappointing are Pimco's new EM funds, which I think have underperformed (by a fairly wide margin) what I expected.

msf

Generally speaking, what you get should reflect which sectors have done poorly in the past year. That's why many people recommend rebalancing - you automatically shift from sectors that have done well to ones that have been underperforming. No complicated work required.

On the other hand, if funds in well-performing sectors appear on the list, there may be issues with those particular funds. Then you need to look into the funds themselves. If you've got a low volatility fund in a year when most sectors are doing well, then you'd expect underperformance; similarly, if you have a high volatility fund in a poorly performing sector, you would not be surprised to see even worse individual performance. So long as the performance is within appropriately set expectations, I wouldn't view such a fund as exceptional (good or bad).

Usually if a fund started performing significantly worse than its peers (and for a much more prolonged period than a year), I'd be looking at it to sell, not to buy. You'd need a rather unusual story to persuade me otherwise - that not only did the fund underperform because of security selection, but that this was systematic and deliberate and that the market was changing to make this strategy effective. That is, the performance was not a result of generally lousy selections, but deliberately lousy selections that would ultimately look good.

Regarding your screen - it looks like you've selected no-load funds; not NTF funds. For example, Vanguard Energy Adm (VGELX). Don't know anywhere outside of Vanguard that this is NTF. (Even at WellsTrade, it has a transaction fee - it is not NTF, though WT waives the fee for most PMA account holders.)

bee

Reply to @fundalarm:
As I mentioned above, I own many of these funds and I believe that adding to these positions at a time when they are "under performing" is a buying opportunity in my opinion. I try to take profits in other investments that are "out performing". Out performance with my equity positions ended for me in February...under performance is where I want to look for buying opportunities. Sharing this information might provides others an opportunity to share a fund or two that they believe is as a long term hold and that might also be under performing.

From a data mining take away, I found it interesting that as a group the 5 star funds have lost less as a set (range was -4% to -15%) compared to the other lists. Makes me think that there is something to Morningstar rating system.

bee

Reply to @msf:
Good eye with regard to the NTF issue. I screened out loaded funds and thought I had only selected No load/No fee. USAA does charge a fee to get into Vanguard, T Rowe Price, and Fidelity. I have a direct relationship with these companies as well as use their brokerage services for this reason. Thanks for noticing and for you comments.

msf

Reply to @bee: The M* ratings are backward-looking scorecards. If a fund loses relatively more even for a year than other funds, then its average return goes down more, and it is more likely to lose a star over the past year. So the 5* funds lost less on average than the 4* funds. That's how they're getting scored.

If you want to see whether there is anything predictive to M* ratings, take a look at the ratings these funds had a year ago - group these funds according to the ratings back then. Then look to see whether the 5* funds from a year ago that did the worst fared any better than the 4* funds from a year ago that did the worst.