Updated Feb 9 with SCG grading
A follow up from my earlier preliminary study that I have named Rolling Alpha Returns Exposé (tm) RARE analysis of mutual funds to identify if mutual fund returns are sensitive to when an investor holds them (more sensitive they are, less likely most investors would have realized the fund's best returns even if they held it for a long time).
Having finished the remaining programming to find the distribution of returns, I am presenting a grading system for mutual funds using the following grades. Selected funds with at least 8 years of history from The Great Owls and the top 20-30 ranked funds at US News Fund ratings. They show significant differences in the sensitivity to time periods.
The grading scale:
A - Over-achievers : Significant alpha over index returns (1% or more per year) and for most investment periods regardless of which 3 or 5 yr period you pick in the last 8 years. So most investors would have seen that performance.
B - Steady achievers : Respectable alpha over index returns (0.5 to 1% per year) for most investment periods
C - Closet indexers : No statististically significant difference from index returns for most investment periods.
D - Pretenders : While some cherry picked returns look good, less than index returns for most investment periods
E - Lottery tickets : Significant alpha for specific periods but underperformance for most investment periods
F - Failures : Statistically significant under performance for most investment periods
X - Toxic : Very poor returns relative to index for most investment periods except for an insignificant percentage of intervals so unless investors caught that interval would have suffered significantly relative to the index
Selected funds can be index funds themselves but using a different index or a narrower index than the sector index but measuring themselves againt it.
Grades for selected funds:
(*) indicates Great Owl FundsLarge Cap Core/Blend US Domestic Funds
POSKX(*), AWEIX(*), VTCIX, NMIAX
FLCEX, VQNPX, VPMIX
PRDGX(*), TRISX(*), PRCOX
CAPEX, SLCAX, SCPAXLarge Cap Value US Domestic Funds
FDSAX(*), DFLVX, DPDEX, BRLVX
NOLCX, BPAIX, DDVIX(*), TRVLX, VWNDX, LSVEX
Comments on LCV funds in the post
below.Large Cap Growth US Domestic funds
FDGRX, NICSX, GTLLX
TRBCX, TPLGX, TRLGX, FBGRX
PLGIX, FNCMX, JIBCX
POGRX, VHCOX, RDLIX(*)
TILGX, FDSVX, TLIIX,TILIX
Comments on the LCG fund grading in my comment belowSmall Cap Growth US equity funds
PRDSX, HSPGX, BCSIX, RSEGX, TRSSX, JGMAX, WFSAX, JANIX
TISEX, GSXAX, SGPIX, TSGUX
BRSGX, MPSSX, TCMSX
PS: I do realize it is egg on my face for criticizing SMVLX and starting this analysis to prove my hunch while it came out on top of all the other funds. Sometimes intuitions can be wrong and hence the need for analysis. This is why startups pivot when intuitions about their markets aren't supported in numbers later on. Shows I didn't design the analysis to prove my hunch as can be easily done with statistics!
It appears that this analysis could be applied between any two similar funds to decide which one is less likely to disappoint if you weren't lucky enough to be in it for its best periods. This can be ONE fund selection criterion say for example if you wanted to choose between POSKX and VTCIX. This would help even more when there is no good index to compare a fund to like allocation funds or multi sector funds. More of such results later.