@davidrmoran, the answer to your last question is in that same post I pointed to earlier which gives example of how and when they might differ. A low volatility fund can score very high or very low depending on its returns through time relative to index. Think about it. And yes, you would see the difference if you thought about it for a while. I don't really think you are giving enough time to think about this before jumping into questions/conclusions. Ok if that is your style but please do not expect me to keep explaining and correcting. It is tiresome.
It is a valid question to ask as to how one would use this. So I will answer that as it would be useful to many to consider
The way I would use it in the future would be as one more input into fund selection. Typically, fund selection uses a number of factors, performance, tax efficiency, manager reputation, etc. So you land up with a number of potential candidates or a short list for most asset classes.
Out of these I would look at RARE grades if available or I can calculate them to see if any of them scored low. If they did, then I would suspect that perhaps the manager was streaky in his performance or only did better in specific market conditions. If the fund seems like a good one otherwise, I would take a look again at the performance charts to see if he had some small periods where he did well but not so much otherwise. This is different from just looking at 5yr or
10yr results as people who have read should have understood by now. If that was the case, I would skip it even if it was highly rated because none of these ratings consider this fact about the fund. Or if I really wanted that fund for other reasons or didn't have a choice say in a 40
1k, then I would wait for a time when the manager was underperforming the index than overperforming to get in with a big lumpsum. This is different from whether the market was down. If my plan was a regular DCA, I would not get into such a fund with low RARE grading because, it is likely that a lot of my purchases would likely do better elsewhere missing the streaky performance.
This is more about minimizing opportunity costs in getting into a better fund not in minimizing losses as people who have understood the metric would clearly see.
If the rating was good - B or better - then it would reassure me further about the fund that I had shortlisted that I wouldn't get shortchanged because I happened to jump in at the wrong time. So I wouldn't heistate to get into such a fund if other factors about the fund checked out.
If the only potential candidates for that asset class from other considerations and availability were in the C region or below in RARE grades, I would just buy an index fund or ETF instead for that allocation.
Every year or so when I take a look at my funds, I would reassess the funds in the same way as if I were selecting them and see if the original assumptions still hold. I am not in the camp of hanging on to a fund for decades to give the manager a chance. It is too late then if the manager has failed. If a fund has not met my realistic expectations of the fund for selection in 3-5 years, then the fund is out. My expectation if I have done the selection carefully is that I really would not need to make any changes but I am not one to believe I should not change and just hang on.
But that is just me adopting this additional information to make a more informed choice. Some people throw darts or chase returns or pick the latest fad fund and pray their selection was good. My effort here is to share that additional information with people who think more like the former than the latter.
