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mutual fund rankings

edited April 2011 in Fund Discussions
Which is a better prognosticator for future results, long term performance or short term performance?
If I look at OAKIX, Oakmart International, Morningstar provides a ranking of 5 stars predicated on a long term performance. Bloomberg however lists it as 1051 rank of 1469 international funds based on more recent performance. Naturally under perfect conditions both long and short term should be high for us to contemplate any purchase but in a real world this rarely occurs.
So then, which do you use, long term or short term?


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  • Unless there is a long term shift in market conditions that the fund does not appear to be responding to (which will tend to show up in shorter period figures, and then I'll look more closely at the portfolio and changes, in the context of overall fund strategy), I will look at longer term figures.

    Regarding M* in particular - the overall figure you are looking at is biased toward shorter term (3 year), not longer term (10 year) performance. This is because M* computes a weighted average of the 3, 5, and 10 year ratings, effectively counting the first three years twice vs. the latter five (somewhat like exponential weighting). M* gives OAKIX 5* over three years as well as over longer periods. Remember too that M* ratings are risk-adjusted.

    Since you do seem to want to ignore risk, skip the stars altogether. Just go to the M* performance tab, where you can see its raw performance ranked (percentile and absolute figures) against its category. Over the past three months, M* ranks it even lower than Bloomberg (80th percentile, while you say Bloomberg puts it at 72nd percentile - 1051/1469); but that could simply be that M* is comparing with large cap value funds, not all int'l funds.

    If one looks back even just one year, the fund was still top 1/3. I agree with Maurice - a few months underperformance, without more, is not a reason to pull the trigger. Take a look at the performance rankings year-by-year: 2004 (74th percentile), 2007 (94th percentile). It's expected.
  • If comparing similar type funds, I'll go with the longer record. Even the best manager can have individual holdings fall in and out of favor short term. You might even make a little extra on an eventual rebound. However, check to make sure no significant changes have occurred since it earned that stellar record. Look at management, fees and investment philosophy and types of investments as spelled out in its prospectus.
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