Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Fund ratings... The way it is presented is a bit confusing. All 20 year funds are listed in what seems to be arbitrary ordering. At least grouping their category would be nice.
Secondly, why quarterly? Why not do it weekly, montly? It can be automated, run by a cron job and automatically updated and posted on the web site.
Third, risk adjusted returns are hiding part of the story. Focusing on risk adjusted return might also result in failure to reach objectives as you cannot spend risk adjusted return. You can only spend real returns. Some funds do have high risk adjusted returns but they also have very little equity exposure. The manager high have done wonders with the 50% equity he is investing but since average mutual fund investors cannot lever the portfolio by 100% that alpha is not always translating into longer term returns. In comparison, another fund that has less risk adjusted return but kept more of the fund in equity could do better over a longer term as despite all those market crashes, nasty declines etc. the market is positively biased. In fact, this is where the index funds win as beta is cheap and alpha is expensive and elusive and unpredictable. I largely ignored FA honer roll and ratings. As you see, I have reservations against MFO scheme as well. It has a bias against higher beta funds which might be better choice for someone younger. I know it is all well meaning. I myself as an engineer like to do calculations, etc. So, the effort by Charles is praise worthy. I just wished MFO did not enter Mutual Fund rating business. MFO's value is coming not from rather dry cut quantitative analysis of past data but actual human analysis like what David is doing and this mutual fund board.
Ha! I agree with you on ordering. Was actually in process of adding a Fund Type column, so going forward, will recommend we present Fixed Income categories first, then Asset Allocation, and finally Equity categories.
Yeah, thought we could start with quarterly updates figuring focus was longer term. But if David finds more frequent updates warranted and desired by MFO community, it's an easy do, monthly at least.
Like you, I was never overly influenced by the Fund Alarm Honor Roll or even, I'll admit, the Three Alarm warnings. But I tracked them both and each was an influence. I was especially sensitive to the risk measure.
On risk adjusted measures, there are many. But I find few if any sites posting risk measures based on draw down, namely Maximum Draw Down, Ulcer Index, or Martin ratio. I started posting them for various funds on the board and folks seemed to appreciate. So, thought it would be beneficial to post them for all funds in central place on MFO site. Once the calculations are performed, only natural and interesting to compare, for me at least.
"You can't spend risk adjusted returns!" I know. If it helps, within each of the five return groups, will be sure to sort by absolute return when we stand-up full system.
Reply to @Investor: At first glance, I see a ton of work that has been put into this, thank you for that. My only first thought, why 20 years? In the mutual fund world, an eternity. I see one of my most conservative funds, Wellington, is not conservative when judged against GNMA. So, I have considerable doubt it will be helpful to me.
Reply to @ron: Hi Ron. Congratulations on owning VWELX, a marquee fund. Years ago I chose DODBX over VWELX and suffered badly during financial crisis when D&C got hammered. Both were recommended in an article that influenced me called One Fund for A Lifetime, by Paul Merriman.
Wouldn't it be great to be able to put your money in one fund and forget about it for years? I think 20 years represents that kind of enduring tenure and attendant stature, while still being relevant to present, especially if the fund's performance can persist across shorter time frames, like 10, 5, and 3 years. Really hard to do. Could have picked 15 or 12...or 7? Just needed to snap line somewhere. I'll blame Mr. Merriman.
VWELX does show up in Risk Group 3, or "Moderate," versus the GNMAs you note, which are in Risk Group 1, "Very Conservative." Novice investors likely expect that funds in the "Moderate Allocation" category have moderate risk. But we know it's not always true. DODBX is an example! Similarly for Interim Government fixed income funds. Not all have low risk.
David and I had a version of the system that was investment category agnostic if you will...where the ratings were only within risk groups, but at the end of the day we thought it would be more useful to readers to rate within traditional investment categories while only noting risk relative to market.
In particular, while some funds had stable management, others have different managers so long term performance may or may not be relevant. This is not a problem that is particular to this site. Many rating sites exhibit this issue.
I also think not including the list of funds from longer time frame into shorter time frame is also not useful either. Are you expecting the user looking for 3, 5 yr etc. horizons to manually merge these?
I personally think a screener based on various types of risk/return, time frame, category would be very useful for the users. They can input their own criteria and get their own list suitable for their own particular situation for further evaluation. I am OK by using a monthly or quarterly database to generate these but static lists are far less useful.
I just don't like the owl (or star) designations. The funds that gets owl designation is getting some sort of endorsement by this site.
>@investor said >I just don't like the owl (or star) designations. The funds that gets owl designation is getting some sort of endorsement by this site.
but by virtue of it - isn't that the case as it is ???
Reply to @Accipiter: If a screen brings up a fund that is previously reviewed by David, I might accept to see a single Owl that indicates that such a commentary exist and clicking on the owl brings that commentary to read. Heck, the screener can be instructed to screen only owl'ed funds. That is much different use of owl that assigning 1-5 owls (or stars or gold coins etc) to a fund.
Reply to @Investor: Man you're tough. I agree with Accipiter. The new ratings help highlight funds that deliver superior returns while protecting against draw down...some of them persistently. For example, you often recommend VWINX and GLRBX on the board. I'd never even heard about the latter. But the system highlighted those very two funds just based on the numbers. I find similar results across all age groups, like COBYX in the 3 year group. Any system has its strengths and weaknesses, but I know the information in this one is not easily available anywhere else and provides another perspective for the MFO community when considering mutual funds.
The system does integrate all existing funds for all time periods evaluated when examining return group, but initially thought it best to tabulate the performance and risk measures only for the longest period applicable. An early version of the system did tabulate all 7000 funds for all five time frames, but it seemed overkill and kind of diluted the message. The interesting part was whether a fund's performance persisted versus the other funds in its category. I also found segregating the funds by age group helped evaluate peers and highlight standouts. In any case, working with David and Chip on how to best handle the full-up database. I trust you know by now that if you're not happy, I'm not happy.
Comments
Fund ratings... The way it is presented is a bit confusing. All 20 year funds are listed in what seems to be arbitrary ordering. At least grouping their category would be nice.
Secondly, why quarterly? Why not do it weekly, montly? It can be automated, run by a cron job and automatically updated and posted on the web site.
Third, risk adjusted returns are hiding part of the story. Focusing on risk adjusted return might also result in failure to reach objectives as you cannot spend risk adjusted return. You can only spend real returns. Some funds do have high risk adjusted returns but they also have very little equity exposure. The manager high have done wonders with the 50% equity he is investing but since average mutual fund investors cannot lever the portfolio by 100% that alpha is not always translating into longer term returns. In comparison, another fund that has less risk adjusted return but kept more of the fund in equity could do better over a longer term as despite all those market crashes, nasty declines etc. the market is positively biased. In fact, this is where the index funds win as beta is cheap and alpha is expensive and elusive and unpredictable. I largely ignored FA honer roll and ratings. As you see, I have reservations against MFO scheme as well. It has a bias against higher beta funds which might be better choice for someone younger. I know it is all well meaning. I myself as an engineer like to do calculations, etc. So, the effort by Charles is praise worthy. I just wished MFO did not enter Mutual Fund rating business. MFO's value is coming not from rather dry cut quantitative analysis of past data but actual human analysis like what David is doing and this mutual fund board.
Ha! I agree with you on ordering. Was actually in process of adding a Fund Type column, so going forward, will recommend we present Fixed Income categories first, then Asset Allocation, and finally Equity categories.
Yeah, thought we could start with quarterly updates figuring focus was longer term. But if David finds more frequent updates warranted and desired by MFO community, it's an easy do, monthly at least.
Like you, I was never overly influenced by the Fund Alarm Honor Roll or even, I'll admit, the Three Alarm warnings. But I tracked them both and each was an influence. I was especially sensitive to the risk measure.
On risk adjusted measures, there are many. But I find few if any sites posting risk measures based on draw down, namely Maximum Draw Down, Ulcer Index, or Martin ratio. I started posting them for various funds on the board and folks seemed to appreciate. So, thought it would be beneficial to post them for all funds in central place on MFO site. Once the calculations are performed, only natural and interesting to compare, for me at least.
"You can't spend risk adjusted returns!" I know. If it helps, within each of the five return groups, will be sure to sort by absolute return when we stand-up full system.
I see one of my most conservative funds, Wellington, is not conservative when judged against GNMA. So, I have considerable doubt it will be helpful to me.
Wouldn't it be great to be able to put your money in one fund and forget about it for years? I think 20 years represents that kind of enduring tenure and attendant stature, while still being relevant to present, especially if the fund's performance can persist across shorter time frames, like 10, 5, and 3 years. Really hard to do. Could have picked 15 or 12...or 7? Just needed to snap line somewhere. I'll blame Mr. Merriman.
VWELX does show up in Risk Group 3, or "Moderate," versus the GNMAs you note, which are in Risk Group 1, "Very Conservative." Novice investors likely expect that funds in the "Moderate Allocation" category have moderate risk. But we know it's not always true. DODBX is an example! Similarly for Interim Government fixed income funds. Not all have low risk.
David and I had a version of the system that was investment category agnostic if you will...where the ratings were only within risk groups, but at the end of the day we thought it would be more useful to readers to rate within traditional investment categories while only noting risk relative to market.
More issues:
In particular, while some funds had stable management, others have different managers so long term performance may or may not be relevant. This is not a problem that is particular to this site. Many rating sites exhibit this issue.
I also think not including the list of funds from longer time frame into shorter time frame is also not useful either. Are you expecting the user looking for 3, 5 yr etc. horizons to manually merge these?
I personally think a screener based on various types of risk/return, time frame, category would be very useful for the users. They can input their own criteria and get their own list suitable for their own particular situation for further evaluation. I am OK by using a monthly or quarterly database to generate these but static lists are far less useful.
I just don't like the owl (or star) designations. The funds that gets owl designation is getting some sort of endorsement by this site.
@investor and @Charles
see
http://www.mutualfundobserver.com/discuss/index.php?p=/discussion/comment/23967#Comment_23967 but by virtue of it - isn't that the case as it is ???
The system does integrate all existing funds for all time periods evaluated when examining return group, but initially thought it best to tabulate the performance and risk measures only for the longest period applicable. An early version of the system did tabulate all 7000 funds for all five time frames, but it seemed overkill and kind of diluted the message. The interesting part was whether a fund's performance persisted versus the other funds in its category. I also found segregating the funds by age group helped evaluate peers and highlight standouts. In any case, working with David and Chip on how to best handle the full-up database. I trust you know by now that if you're not happy, I'm not happy