OSTIX - The Problem with M*

Comments

• Tony

  January 2017

  VF, on the M* page I see, right above the words "virtues are," in the headline "This fund's virtues are not fully appreciated," it says "Analyst Report Archive," which you can click on.
• msf

  January 2017 edited January 2017

  M* December 2014: "So this fund's true risk profile has been more conservative than the portfolio's credit profile suggests. ... Thanks to having the category's lowest 10-year Morningstar Risk score, its risk-adjusted return over that period lands in the group's top quartile. As a result, this fund has, somewhat improbably, proved to be one of the category's better options for risk-averse investors."
  
  M* December 2015: "One of the better high-yield offerings on a risk-adjusted basis. ...Although its long-term returns trail its benchmark, the fund has been excellent on a risk-adjusted basis. For this reason, the fund retains its Morningstar Analyst Rating of Bronze."
  
  You'll need M* Premium Membership to follow the links.
  
  Maybe it's not that M* has erased its history, but that it didn't say the fund was too risky. What it did write, repeatedly, was that while the fund delved well into junk it also managed that risk exceedingly well. Thus the fund's actual risk profile was different (and lower) than what one would think looking only at its credit ratings.
  
  
  
• hank

  January 2017 edited January 2017

  Agree with VF's sentiments. And don't know why anybody would trust M*'s risk assessment - or anyone else's. Do your own. Get a recent copy of a fund report and examine the holdings. With bonds, credit rating should be listed or at least discernible. I'd agree there's many ways of assessing and even valuing risk. So that's part of the problem. If you can still locate how a fund performed during the '08 meltdown, it provides a superb risk assessment - alibeit not the only one.
  
  With a big disclaimer that I know nothing about Max Funds (like who runs them and what conflicts of interest may exist), I usually look at them along with the others before buying a fund. Their assessment of OSTIX ain't that great. http://www.maxfunds.com/funds/data.php?ticker=OSTIX&pg=d (killing some time at DTW)
• msf

  January 2017

  One can choose how much credibility to give to subjective analyses. That said, "scoring" that is retrospective is generally objective. What's important there is understanding what goes into that score.
  
  For OSTIX risk, M* and Lipper are in pretty close agreement, i.e. their different scoring systems in this case lead to the similar conclusions. Risk has been low but slightly increasing in recent years. You can see this in M*'s 3 year risk rating (below average) vs. its 5 and ten year risk ratings for the fund (low).
  
  Lipper represents risk differently. It uses "Preservation" to represent downside risk. (Here's its methodology.) On preservation OSTIX has been very solid - 4 or 5 over all timeframes. (Dropping from a 5 rating over five years to 4 over three years, tracking M* over these periods.)
  
  MAXFunds rates OSTIX's risk at 1(low) on a scale of 1-5. But it isn't clear whether that is relative to the fund universe or to HY funds.
  
  All these sources seem to concur that OSTIX is a low risk fund. This despite the relatively low credit rating (B vs. BB for some HY funds) that the fund sports. This supports the M*assessment that the credit rating in this case doesn't accurately represent the risk in the fund.
  
  At least some of that risk control may be coming from its bipolar approach to credit - around 20% AAA, over 20% in cash, and nearly all the rest in really low grade stuff (B or below). It's like a barbell approach, but a barbell on credit quality, not duration.
  
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  FWIW, here's MFO's review of fund sites as of five years ago:
  http://www.mutualfundobserver.com/2012/03/march-2012-mutual-fund-rating-sites/
  
  Also a thread about one of the sites it liked, FundReveal.
  http://mutualfundobserver.com/discuss/discussion/2441/fund-reveal-please-try-it-out
  
  That's a pay-only site, and apparently it's tripled its fees in the past five years, from $100-$150 to $495 and up.
• PRESSmUP

  January 2017

  M* is a site I use for data...but take their opinions with a grain of salt. OSTIX is one example, plus their dismal ratings on several funds I own which are classified as short term bond holdings positively reviewed by this site.
  
  On the plus side, I did make a bunch of money with Josh Peters...but he's now gone.
  
• hank

  January 2017 edited January 2017

  "MAX Funds: a nice little site, especially if you like speedometer-type gauges."
  (Or maybe if you don't put much credence in any of them)
• kevindow

  January 2017

  @VintageFreak, I use M* data and nothing else. So far, I am not convinced that M* is an objective, sponsors-be-damned source of analysis. Just use their data and move along as I do.
  
  That being said, at the end of a 30+ year bull market in bonds, I would be very careful with bond fund selection. Right here, right now, I would stick with PIMIX, and if you want to get fancy-schmancy, consider WHAIX as well.
  
  I think the world of you, but OSTIX would not make my short list of attractive FI funds.
  
  Kevin
• VintageFreak

  January 2017 edited January 2017

  I am not buying it. Next time I'm going to save their archives...
  
  NO! WTF am I saying? Let me go get a life...I was suffering from temporary insanity.
• BobC

  January 2017

  M* has had a problem with classifying a lot of funds. It's nature is to fit everything into neat boxes, often times without regard to what the fund really is, its philosophy, and its history. They crammed OSTIX into the HY group a few years ago, which immediately caused the fund to go from 5* to 1 or 2*. After that, they refused to acknowledge their error and actually compounded it by saying the risk level was much higher than it really is or ever has been. As others have said, it is important to know a fund's real strategy before making any comparison with other funds within a M* category.
  
  For years, M* lived and breathed its self-created style boxes, when it know dang well that a lot of funds do not fit the boxes they were assigned. No matter, they just assigned lousy ratings to those who did not fit the mold when their numbers were not as good as the box average. It seems, thankfully, that we are pretty much over style boxes. But the asset category issue is still with us. Be cautious when using M* risk measures.