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Per Morningstar today = RPHYX ( RiverPark Short Term HY Star Rating reduced to 1star. !!
RPHYX is categorized as a high-yield fund which is fundamentally misleading. It's designed to be a cash-management fund - 3-4% returns, negligible volatility - but it's benchmarked against high-volatility longer term bonds that act more like stocks. As a result, it tends to have exceedingly high Sharpe ratios and a one-star rating.
The only time you should see the fund with two (or, God forbid, three) stars is if the high-yield market is imploding. Having it drop back to one star is a sign of relative normalcy in the HY market.
I understand that RPHYX is miscategorized, but even so, I don't think the downgrade is meaningless or out of context. ZEOIX, which was profiled on MFO and has a similar-ish strategy and goal, is almost 200 bps higher than RPHYX this year. Which does not sound like a lot, but in the context of these funds, it means ZEOIX's return is almost 3 times more than RPHYX for the year. ZEOIX is sitting on three stars.
Maybe RPHYX doesn't deserve to be lumped in the high yield fund category, but that doesn't mean it doesn't deserve to be downgraded. The manager clearly made mistakes this year, and performance has suffered, both on an absolute basis and in comparison to other funds with similar goals.
It doesn't matter what the fund said or didn't say. It doesn't matter what the reason for the fund performance was. If it had held securities that the market sold off because of a false rumor, it wouldn't matter.
Star ratings look at nothing but raw data - performance figures (returns and volatility). They don't incorporate what the fund says, they don't incorporate what the fund holds (except to identify its category of peers).
Those "major screwups" may explain why the fund held securities that performed poorly. That should affect your decision to own or not own the fund. But it doesn't affect the bottom line - how the fund performed, for whatever reason. That's all stars represent.
msf, normally I would agree, but in this thread, David's post was making the argument that when a fund is miscategorized, then the stars don't actually reflect the fund performance, because it is being compared against the wrong peers.
In the case of RPHYX, the argument would be that being downgraded to one star does not reflect the poor performance of RPHYX, but only that its miscategorized peers (high yield funds) are doing much better -- which is not relevant to evaluating RPHYX's performance.
I agree it doesn't make sense to compare RPHYX to other high yield funds, and indeed I'm sure there have been (and will be) many times where RPHYX's star rating gets downgraded or upgraded simply because it is miscategorized. But in this particular downgrade, it seems to me that it does reflect on RPHYX's actual recent struggles, and not just a result of being lumped in the high yield category.
Okay, I see your point - that even though the star ratings for this fund aren't particularly meaningful (as David explained), this particular shift was properly reflective of poor (recent) performance in RPHYX. This was poor performance in an absolute sense, regardless of what its supposed peers were doing.
What I was trying to convey was that all this would be true (including a deserved reduction in stars) regardless of whether the fund screwed up (in the sense of bad decisions). What matters is that the fund sank for whatever reasons, even if the manager had made good decisions.
We agree - the fund did poorly and it's good that it lost stars as a result.
Comments
RPHYX is categorized as a high-yield fund which is fundamentally misleading. It's designed to be a cash-management fund - 3-4% returns, negligible volatility - but it's benchmarked against high-volatility longer term bonds that act more like stocks. As a result, it tends to have exceedingly high Sharpe ratios and a one-star rating.
The only time you should see the fund with two (or, God forbid, three) stars is if the high-yield market is imploding. Having it drop back to one star is a sign of relative normalcy in the HY market.
For what that's worth,
David
I understand that RPHYX is miscategorized, but even so, I don't think the downgrade is meaningless or out of context. ZEOIX, which was profiled on MFO and has a similar-ish strategy and goal, is almost 200 bps higher than RPHYX this year. Which does not sound like a lot, but in the context of these funds, it means ZEOIX's return is almost 3 times more than RPHYX for the year. ZEOIX is sitting on three stars.
Maybe RPHYX doesn't deserve to be lumped in the high yield fund category, but that doesn't mean it doesn't deserve to be downgraded. The manager clearly made mistakes this year, and performance has suffered, both on an absolute basis and in comparison to other funds with similar goals.
Star ratings look at nothing but raw data - performance figures (returns and volatility). They don't incorporate what the fund says, they don't incorporate what the fund holds (except to identify its category of peers).
Those "major screwups" may explain why the fund held securities that performed poorly. That should affect your decision to own or not own the fund. But it doesn't affect the bottom line - how the fund performed, for whatever reason. That's all stars represent.
In the case of RPHYX, the argument would be that being downgraded to one star does not reflect the poor performance of RPHYX, but only that its miscategorized peers (high yield funds) are doing much better -- which is not relevant to evaluating RPHYX's performance.
I agree it doesn't make sense to compare RPHYX to other high yield funds, and indeed I'm sure there have been (and will be) many times where RPHYX's star rating gets downgraded or upgraded simply because it is miscategorized. But in this particular downgrade, it seems to me that it does reflect on RPHYX's actual recent struggles, and not just a result of being lumped in the high yield category.
What I was trying to convey was that all this would be true (including a deserved reduction in stars) regardless of whether the fund screwed up (in the sense of bad decisions). What matters is that the fund sank for whatever reasons, even if the manager had made good decisions.
We agree - the fund did poorly and it's good that it lost stars as a result.