@mrdarcey.
Thanks man.
Early on, I believe the board debated why not 7, 12, and 15 years?
When we first rolled it out, I think we had "aspiring GOs" or something like that for funds that were top quintile the past 1 and 3 years. But, after discussing with David, we thought to just simplify it to current definition: top quintile for all evaluation periods 3 years or more, as applicable.
Nothing scientific here. Just the definition we chose.
Think too the board debated why not ratings based on other metrics (absolute, Sortino, upside/downside) as well, which is something again we are working on. Probably won't change the GO definition, but I believe it would be valuable to have the other metrics...just to know.

@davidmoran.
First, a disclaimer. I'm a Steve Romick fan. If FpA did not charge so much for FPACX, I would have owned it long ago.
A look at the numbers...

They are great.
Top quintile across its lifetime and across last two full market cycles with consistently moderate risk.
OK, it's "only" forth quintile during last 3 and 5 years, but that again is because of the defensive nature of the fund given the bull market.
But who cares?
Again, if FPACX had a lower er, I would own it in a NY minute.
In this case as well, MFO results consistent with M*:

OK, BUFBX...

Ha!
A classic case.
Its 10 year numbers are great, but it's lifetime numbers and full cycle results not so great.
If it helps, when BUFBX soon crosses the 20 year mark, it will NOT be a GO. Another case where GO assignment should be taken in context of age group.
Looks like M* has same issue here, since its ratings only go out 10 years:

Hey, working hard to make the full cycle and life time metrics and much more available to MFO readers. Thanks to good questions and suggestions from readers on the board, I've come to appreciate full cycle and lifetime numbers more and more.
Now, time for another cup of coffee.

@STB65 This is a pretty good article on defined mat bond funds. You should use it to start a discussion topic on them, see what others have heard about them, maybe even what others have experienced with them.
As for the downside protection, I wouldn't be too sure about that. These funds are very very new invention. Sudden market shifts could hurt them, in ways they couldn't recover by maturity date..... time will tell.

About a year old. Firm has solid history in E M bonds.I have a small position.
TCW Emerg Mkts Multi-Asst Opps N TGMEX
% Developed Markets 31.89
% Emerging Markets 68.11
Non US Stock 57.63
Non US Bond 36.22
Argentine/Ukraine/Russian holdings have added to risk profile.Opportunity?

Nevertheless, it would be a mild surprise to me if all of you were not aware that Parnassus recently announced a change in the name of their fund from Equity Income to Core Equity. I do not think this change is insignificant, and it is not the first good (so-called) Equity Income fund to do this;

FWIW, Parnassus has changed nothing in the Prospectus regarding how PRBLX is managed. It still has the exact same requirements and limitations, specifically that 75% of all equity holdings be dividend payers. There might be another social screen, IIRC.

So, I am aware of three surface level problems with the Great Owl designation about which Charles has been more than forthcoming:
1) The ratings don't take into account style changes. PRBLX was Parnassus Balanced Fund, for instance, until 1998;
2) The ratings do not do a good job comparing funds with differing life spans. You can't compare a three year old fund with one that is 20;
3) The ratings are contingent on the exact moment of time they are taken. You cannot use the MFO ratings to compare funds within a given time period that does not end in the present (say, Summer of 2007 to Spring of 2011).
It's the last that people seem to be running up against here. The last five years have been a consistent bull market. Funds that lag, even slightly, in that up environment are not going to meet the Great Owl requirement of top quintile returns in all periods but 1 yr. I understand the impulse to say that underplays downside performance. But if you took the same measure after the next correction, there might well be an excellent chance both PRBLX and FPACX would both be Great Owls, assuming they repeat past downside performance. We're at the disadvantage of looking historically from an odd moment in time that is distorting results. Call it the Cinnamond Effect. The problem isn't that the MFO ratings downplay downside protection, but that they perhaps overemphasize recency. This is perhaps one area where M* gets it right by overweighting longer term performance.
FPACX and BUFBX strike me as a good example. Take a look at M*'s "ratings and risk" comparison for the past three and five years for the funds:
performance.morningstar.com/fund/ratings-risk.action?t=BUFBX&region=usa&culture=en-US (edit: when I use this link, FPACX isn't listed, so you might have to input into the compare function.)
By any measure you look at there, BUFBX trumps FPACX. BUFBX has better returns, SD, Alpha, Treynor, Sharpe, and Sortino ratings over those periods. If you look at M* proprietary measures, BUFBX has a higher return with lower risk. Over the past three and five year periods, FPACX is a four star fund, while BUFBX gets five for both. If all mama looks at is 5 year returns, the choice is easy.
If mama extends her timeframe out to 10 or 15 years then other historical attributes of the funds become clearer. By this measure, FPACX begins looking much better. When we look at M*, both are 5* funds. Now when we look at Charles' records we see FPACX scores better on Downside Dev, Sharpe, Sortino, Martin, and Ulcer ratings. BUFBX is no slouch, however, and when you put all the temporal results together it gets denoted a Great Owl precisely because its 3 and 5 year results are better. Again, that isn't preferencing upside to down, its weighting recency differently, and looking from a specific point in time that gives an advantage to upside performance. IIRC, FPACX was a Great Owl until the last quarter, when its recent performance slipped into the second quintile.
When MFO first released these ratings I specifically remember two things: Charles was concerned that they specifically demonstrate downside protection in a way other rating systems, particularly M*'s, didn't; and the whole team was leery of coming up with a list of winners lest it be taken as a specific recommendation and lead people not to do their homework. To the first, Charles included all kinds of historical downside numbers you don't see elsewhere. For the second, I seem to recall the conversation pointing out one of the reasons the made a list of "Great Owls" was to demonstrate just how difficult it is to achieve consistent returns over 10-20 years.
All MF rating systems are arbitrary at some intrinsic level, and the user has to understand how they work in order to make sense of them. MFO's system is no different. If dear mother uses it blindly without doing further homework and ends up making a fund choice she is unhappy with, that's on her. That we are having this conversation, though, means that maybe Charles and David's fears about ratings misuse are well-founded.

@davidmoran. No worries. AJ and I just lost lock.
I too worry about downside.
I honestly think Martin is best parameter to use when evaluating downside historical performance.
That's precisely why it's the foundation for the MFO rating system, which is the irony of your analogy.
But these backward looking systems based strictly on performance numbers are just that...M*'s, MFO's. Each provide results consistent with their methodologies.
No indication if a manager has departed, or if the strategy has changed, or what the expense ratio is, stewardship, capital gain implications, etc, etc.
And, like you say, if there has been no downside in the market overall, hard to know how a fund will do when market heads-south.
Just not much help there from a return perspective.
The risk parameter, however, is something that is somewhat less dependent on market cycles. In the MFO system, it's relative to SP500, again, as a flag of downside potential. I personally think that investors should understand their risk tolerance first, then worry about making satisfactory returns. I tend to notice risk color first.
We do our best to define and qualify the ratings, so they become just one piece of an investor's due diligence.
Hey, on the GO designation, we made age group pretty prominent as a way to distinguish between say 20 year GOs and 3 year GOs, while still recognizing the top quintile performers.
Hope that helps, a little anyway.
Thanks again.

@Andy. Yes, think we lost lock. Not sure I'm following the issue, sad to say, again.
When you say M* has it, you mean because M* gives PRBLX 5 stars...but it's not a GO on MFO?
If that is the issue, the explanation is easy. M* uses a composite of years 3, 5, and 10 when assigning stars. In the case of PRBLX, here's what M* has:

In this case, those 3, 5, and 10 year ratings turn-out to be same ratings MFO assigns. Right? The difference is for a fund to be designated an MFO GO, it must be to in top quintile for all evaluation periods.
Really that simple. Believe results are consistent with definitions in both rating systems.
Note too that M* has PRBLX risk at 1 or "Low", while MFO has it as 4 or "Aggressive." The difference here is MFO's system is hyper sensitive to risk and all funds are rated against market, while M* rates risk within category. So, a volatile fund like VGENX can get low risk rating at M* because its within the energy category, which is generally volatile as a whole.
For a closer look at the M* system, might check this out: http://www.mutualfundobserver.com/2014/03/morningstars-risk-adjusted-return-measure/
If I'm still missing the issue, I apologize. Happy to keep assessing if you see something amiss.
PS. Looks like we match here too...

>> step 1 Do nothing until the $+P 500 drops 30% from its most recent high
How many buying opps does this represent? I am having trouble reading the history.

>> step 1 Do nothing until the $+P 500 drops 30% from its most recent high
How many buying opps does this represent? I am having trouble reading the history.

OK,will try to defend myself though I don't mind criticism. All of us know people who are afraid to invest of the stock market for fear of loss.We often suggest they dip their toe in but we are afraid to strongly encourage them because of our fear that we will make them invest just in time to have their head handed to them.I am basically suggesting that if we wait fora 30% dip and follow with dollar cost averaging it seems unlikely that this investment will show a loss.. While past performance etc etc. if such a strategy only failed during the south sea bubble there is a good chance that we will not make our friend unhappy with us.

I kinda see where you're coming from, Charles, but not really. I'm not able to get past the fact that since SMVLX launched, a period that includes both up and down markets, PRBLX has gained 85% cumulative vs. SMVLX's 63% ... with lower drawdown.
From that ~ full cycle history, I think Morningstar has its numerically-based distinction about right. Not sure exactly what accounts for the difference, other than the fact that a 3y-5y basis right now in history gives the nod to any fund that thrives best in a bull market ... so the difference is apparently that M* weights downside risk more than MFO.

FYI: Copy & Paste 6/21/14:
Regards,
Ted
A well-thought-out exit strategy is vital to the success of a mission, as the recent events in Iraq demonstrate quite dramatically.
Given that unfortunate example, it might be well that the Federal Reserve appears to be thinking about the consequences of the end -- and eventual reversal -- of its massive experiment in monetary stimulation. Last week, the Financial Times reported that the central bank is mulling exit fees on bond mutual funds to prevent a potential run when interest rates rise, which, given the ineluctable mathematics of bond investing, means prices fall. Quoting "people familiar with the matter," the FT said that senior-level discussions had taken place, but no formal policy had been developed.
Those senior folks apparently didn't include Fed Chair Janet Yellen. Asked about it at her news conference on Wednesday, she professed to be unaware of any discussion of bond-fund exit fees, adding that it was her understanding that the matter "is under the purview" of the Securities and Exchange Commission.
That nondenial denial leaves open the possibility that some entity in the U.S. financial regulatory apparatus is indeed mulling bond-fund exit fees. The Financial Stability Oversight Council established by the Dodd-Frank legislation oversees so-called systemically important financial institutions, or SIFIs, which include nonbank entities. And, indeed, the FSOC has considered designating asset managers as SIFIs, as Barron's has noted previously ("Why Fund Firms Aren't Too Big to Fail," June 2).
To Dan Fuss, the longtime chief investment officer at Loomis Sayles, the exit-fee story seemed like a "trial balloon." But, he added, "from a practical point of view, I don't think it has a snowball's chance in hell, given the resistance from the retail distributors of mutual funds."
Still, he continued, "it won't make me very popular -- but I think it's a good idea." That's from someone whom I would call the Buffett of bonds. Like his fellow octogenarian in Omaha, Fuss has lived through more than a few market paroxysms and has been able to take advantage by putting money to work opportunistically during panics. Unlike the head of Berkshire Hathaway, Fuss also has had to contend with outflows from his flagship Loomis Sayles Bond fund and the firm's other corporate-bond funds, as happened during the 2008 financial crisis. For staying the course during those dark days, Fuss was named Morningstar's Fixed-Income Manager of the Year in 2009.
The latter vantage point no doubt informs his endorsement of the concept of exit fees for bond funds. As the FT quoted former Fed Governor Jeremy Stein, bond funds give investors "a liquid claim on illiquid assets." That is most acute for open-end, high-yield bond funds, Fuss says, and extends to exchange-traded funds "in less liquid areas," which would apply to junk-bond and bank-loan ETFs.
It is a fact of financial life that most bonds are relatively illiquid, in part owing to their bespoke nature; every bond has its own unique coupon rate and maturity, plus possible features such as call options, seniority, and security, even among the same issuer. In contrast, every common share of most companies is identical (with exceptions for stocks with multiple share classes). Multiple buyers and sellers of the same item is economists' definition of a perfect market, as with a commodity such as wheat. Big, listed stocks come close; bonds, given their granular nature, don't.
The problem of liquid claims on illiquid assets is etched into American culture in the Christmas-time classic film, It's a Wonderful Life. Faced with a run on his savings-and-loan, Jimmy Stewart pleads with his depositors that there's little cash in the till because the money is invested in the townfolks' mortgages and businesses. The practical solutions to this conundrum: deposit insurance and having central banks act as lenders of last resort.
Those facilities don't apply to bond funds now, and didn't to money-market funds in 2008. Following the Lehman bankruptcy, the Reserve Fund "broke the buck," with its net asset value falling below $1 a share. The resulting run on that money fund and others exacerbated the crisis as this source of funds to the money market dried up.
Officials fear that bond funds could represent "shadow banks," the FT writes, intermediaries subject to runs but without resort to the backstops available to banks. Yet, the irony is that the rush into bond funds is a result of the Fed's own policies of pinning interest rates to the floor, which spurred investors to seek income wherever they could find it. As a result, bond funds have ballooned to $3.5 trillion -- with a T -- according to the most recent data from the Investment Company Institute. That's close to the Fed's securities holdings, which total $4.1 trillion.
Statistical evidence of that reach for yield comes from a research paper from Bank of Canada economists Sermin Gungor and Jesus Sierra (which was passed along by Torsten Slok, chief international economist at Deutsche Bank Securities).
Not surprisingly, low rates spurred bond funds to increase the credit risk in their portfolios to boost returns. Canadians, it's safe to assume, are no less desirous of maintaining investment income than are their neighbors to the south.
But with investors having stampeded into bond funds, would exit fees be effective at keeping them from stampeding for the exits at the first sign of higher yields and lower prices? Research suggests otherwise. And, ironically, it comes from within the Fed itself.
According to a New York Fed staff paper by Marco Cipriani, Antoine Martin, Patrick McCabe, and Bruno M. Parigi (and surfaced by Zerohedge.com), impediments to redemptions could actually spur bond-fund investors to sell first and ask questions later. In other words, exit fees or "gates" to discourage redemptions could backfire.
In Sartre's No Exit, hell is famously defined as "other people." The crisis that might ultimately await bond-fund investors is the prospect of being stuck with their fellow shareholders as yields rise and prices fall, rather than paying a ransom to escape. The existential choice facing bond-fund investors is whether to stay and face that prospect, or exit while they can -- if they are not prepared for a long-term commitment.
THE SUMMER SOLSTICE just arrived in the Northern Hemisphere, putting the sun highest in the sky. And, appropriately, the major stock-market averages closed the week at records, notably the Standard & Poor's 500 and the Dow Jones Industrial Average, which approached another round-number milestone: 17,000.
The latest liftoff came after Fed Chair Janet Yellen made clear that neither rising inflation nor soaring asset prices would deter the central bank from monetary tightening. She called the uptick in the consumer-price index, which is running above the Fed's 2% inflation target (admittedly using a different gauge, the personal consumption deflator), "noisy." But it's hurting Americans' budgets more than their ears.
In essence, Yellen endorsed the view espoused by hedge fund mogul David Tepper a couple of years ago, that the course of monetary policy "depends" on the economy. If growth is sluggish, policy will remain accommodative, which is bullish for risk assets. Interest-rate hikes won't come until there is strong growth, which also is bullish. And as long as the monetary authorities have their back, investors have little reason to worry. So, volatility premiums collapsed in the options market; if the Fed is offering free insurance, why pay for it with hedges?
This benign environment is spurring investors to vote with their portfolios. Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, notes a big, $13 billion inflow into equity mutual funds in the latest week and the first outflows from bond funds, totaling $2.3 billion, in 15 weeks.
Have fund investors finally been infused with animal spirits? Hard to say, given that the equities data showed a record influx into utilities, some $1.2 billion, which Hartnett suggests indicates some chasing of that group's torrid past performance, up some 16% in 2014. Utility stocks are viewed as first cousins to bonds; income is their primary allure, but with the prospect of dividend growth, that should trump fixed coupons.
Still, public participation in the stock market has yet to evince irrational exuberance, notes David Rosenberg of Gluskin-Sheff. In other words, the market has yet to violate rule No. 5 of Bob Farrell, the legendary market analyst at Merrill Lynch -- that the public buys most at the peak and least at the lows.
Tops, Rosenberg explains, typically show a melt-up of a heady 11% over 30 days, which represents a first peak. A pullback lures neophytes and momentum chasers "hook, line, and sinker," to form twin peaks. That pattern was apparent in November 1980; August-October 1987; June-July 1990; April-September 2000; and July-October 2007, he points out.
To quote every parent of young kids, we're not there yet. But, Rosenberg relates, there also is Farrell's rule No. 7: Markets are strongest when they are broad and weakest when they narrow to a handful of blue chips.
Another veteran market maven, John Mendelson of International Strategy & Investment Group, last week pointed to the declining number of New York Stock Exchange stocks trading below their 200-day moving averages, a sign of waning momentum in the broad market that he says represents a "negative divergence." That is especially so with the major averages notching records.
So, easy money continues to float Wall Street's yachts. Belatedly, the gold market also has noticed, with the metal surging 3% on the week, and mining stocks leading the advance. Gold may be sending the true signal, above the supposed noise from the inflation indexes.

Roger, understood; am using Miraculous Multisearch now, which is much more useful.
I would still urge tweak of GO criteria such that no one could write things like this:
"SMVLX is a much younger fund [[hence not really an owl?]]. It gets GO status because of its top quintile performance the past 3 and 5 years, so different league ... compared a top 20 year [[non-GO]] like PRBLX. And ... I suspect SMVLX will not do so well when market heads south...much worse than PRBLX for the reasons you point out. I don't see much in way of downside protection there."
Some real disconnects going on for owl designation. I do get your numbers and history points, sure. GO title to me implies something rather wiser than 'Strictly Numerical Winners'. That's all.

Good stuff Andy.
OK, I think I see what you are getting at...sorry for being slow.
Yes, funds like YAFFX do have higher standard deviations than PRBLX.
So, if you equate standard deviation with downside risk, then sure its "underweight."
But, during the past five year bull, funds like YAFFX had higher standard deviation (and higher absolute return), but lower downside deviation and lower Ulcer Index than PRBLX .
So, if you equate downside deviation and/or Ulcer Index with downside risk, then I think the result is consistent.
The rating system is based on Martin, which is related to excess return over max drawdown (aka Ulcer Index), for the period being evaluated.
Break, break.
SMVLX is a much younger fund. It gets GO status because of its top quintile performance the past 3 and 5 years, so different league to me compared a top 20 year, like PRBLX.
And, probably like you, I suspect SMVLX will not do so well when market heads south...much worse than PRBLX for the reasons you point-out. I don't see much in way of downside protection there.
Hope that helps...think we are seeing same things.
Thanks man.
PS. Here are the five year stats for the three funds we talking about:

Charles: " It is PRBLX's performance during the five year bull market that lands it in the 4th quintile."
Sorry to disagree, but that factoid actually supports the notion that low downside risk may be somewhat underweighted in the MFO system.
The icing on the cake is the fact that SMVLX makes the cut and PRBLX doesn't. Since inception of SMVLX, $10k invested there would be $16,300+ vs. $18,500+ for PRBLX - 63% cumulative vs 85% - with the '08-'09 performance the difference. I think that comparison highlights an underweight of loss avoidance (or, alternatively, an overweight of recent performance) in the MFO system.
For reference, both SMVLX and PRBLX are top quintile overall in the M* scheme. They get there by different routes: SMVLX with "above average" risk and PRBLX with "low" risk.

If you are sleeping well as it is, you are ahead of many others. If you are well diversified, you should not see a 50% loss or have to worry about it. I am more diversified than I used to be and as we age, that is always a good thing since we have less time to recover. If we have learned anything from the past ten years it is this: its very tempting to belong to the church of whats working now, but diversification works best in the long run. My funds that were flat last year are year to date best performers with 12% + ytd. I have no pimco funds but congrats on your PIMIX.

@AndyJ. The protocols actually do wickedly well at flagging funds that avoid large and/or extended drawdown. It is PRBLX's performance during the five year bull market that lands it in the 4th quintile. Its five year Martin placed it in spot 66 of the 405 Large Blend funds. Pretty darn good. But in the top qunitile are some other strong performers, like YAFFX, YACKX, BBTEX, SMVLX and OAKMX - Great Owls all of them.
If you are interested, here's link to methodology: http://www.mutualfundobserver.com/2013/06/ratings-system-definitions/
@davidmoran.

...TWEIX, AMANX, GABEX, SSHFX, and GABSX --- much less PRBLX!

These have all been great long-term performers...top quintile in MFO system. Here's link to summary:
http://www.mutualfundobserver.com/fund-ratings/?symbol=TWEIX,+AMANX,+GABEX,+SSHFX,+GABSX,+PRBLX&submit=Submit
Congratulations on holding them.

>> step 1 Do nothing until the $+P 500 drops 30% from its most recent high
How many buying opps does this represent? I am having trouble reading the history.

Seriously, stop trying :D. Why do we do this to ourselves?

>> step 1 Do nothing until the $+P 500 drops 30% from its most recent high
How many buying opps does this represent? I am having trouble reading the history.

Sounds to me same article could be written as "buy smaller cap funds instead of larger cap funds" and we just hit the right 15 year period to write and article.

@VintageFreak
Your lasik surgery resulted in 20/15 hindsight? Remarkable--- must be hella implants!
But now, additional meanings will have to be given to 2 phrases:
1. "Objects in the rear view mirror may be closer than they appear."
2. "Hey, buddy, you've got it back-ass-wards," [to which you can reply, "Why, yes, indeed I do!" :) ]

But seriously, unless you had a number of like -20 something, lasik should give you 20/15, or you need to ask your money back. At night, feels like "less" light penetrating into the eye. I feel I have to be VERY alert eyes open wide driving at night. Of course, it could be psychological. I did it because I was very ticked off losing my glasses during a very overdue vacation at the beach, came back and did it very next weekend. If I had thought about it, I probably wouldn't have. I'm already so good looking doesn't make much difference :P
Now REALLY seriously, how many moving average crossovers, and drawdown % buy/sell surefire formulas do we need? It would seem every so often we have these discussions looking at the past and try to predict the future. Sorry, but that's nuts.