"It’s time once again for our popular thrilling funds feature.
As you may recall, this is a list I generate with simple, strict screens to narrow a universe
of 15,000 fund share classes down to a short list ranging between 25 and 50.
It’s purely a screen; I don’t make any additions or subtractions."Here are the tests:
• Expense ratio in the Morningstar Category’s cheapest quintile. (I use the prospectus adjusted expense ratio,
which includes underlying fund fees but does not include leverage and shorting costs.)
• Manager investment of more than $1 million in the fund (the top rung of the investment ranges reported in SEC filings).
• Morningstar Risk rating lower than High.
• Morningstar Medalist Rating of Bronze or higher.
• Parent Pillar rating better than Average.
• Returns greater than the fund’s category benchmark over the manager’s tenure for a minimum of five years.
In the case of allocation funds, I also used category averages because benchmarks are often pure equity
or bond, and therefore not good tests.
• Must be a share class accessible to individual investors with a minimum investment of no greater than $50,000.
• No funds of funds.
• Funds must be rated by Morningstar analysts.
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https://www.morningstar.com/funds/thrilling-33
Comments
Wow. An awesome list. American Funds always seems to do well. I never owned them but believe @Old_Joe does - or did so in the past.
Can’t say I own any of these. I’ve had decent success however buying funds M* awards a gold medalist rating to. Those aren’t fool-proof and a “gold” rated fund can fall to a “neutral” in quick order for no apparent reason. But if I’m debating between two funds and one has a M* “gold” rating, I’ll go with it. A lot of this has to do with how M* categorizes a fund. As often noted by others, those categories sometimes appear to defy logic.
of other fund families. The only fund on the list that I personally own is Dodge & Cox Income (Class I).
I've previously owned several others—American Funds American Balanced, Vanguard Primecap,
Vanguard Primecap Core, and Vanguard Wellington.
M* "metallic" ratings are helpful (not the auto-generated ones) but I wouldn't overly rely on them.
I may favor a Bronze or Silver fund instead of a Gold fund in a specific category.
Some Bronze/Silver funds will ultimately outperform Gold funds over the long-term.
I currently own a Gold-rated fund which has performed ok but it certainly hasn't been "golden."
Active Fund Strategies researched funds' subsequent performance
after inclusion on Forbes' list from 1990 through 2010 (highlighted below).
I wonder if anyone has conducted similar research for the M* list?
While the Forbes Honor Roll did produce some stellar fund selections, especially the 1996 list,
Forbes Magazine’s ability to call out top fund performance in advance,
either short-term or longterm, was not much better than that of a coin toss!
1. Over the 23 years studied, Forbes had 1,491 opportunities to demonstrate its fund selection prowess.
The annual in-category performance of its recommendations is as follows:
top quartile__2nd quartile__3rd quartile__bottom quartile
27%________ 24%________ 22%________ 27%
408_________365_________326_________392
That’s a first/worst ratio of 51/49, which, once again, has all the success of a coin flip!
2. Three years after inclusion on the list, 27% of the honorees made it to the top quartile of their category,
while 25% landed at the bottom.
A small majority (54%) finished in the top half and a large minority (46%) finished in the bottom half.
3. Five years after inclusion on the list, 27% of the honorees made it to the top quartile of their category,
while 26% landed at the bottom.
The 5-year post performance produced a dismal top half/bottom half ratio of 50/50.
PDF
But how much fun would that be?"
Many academics/industry professionals/writers suggest buying cheap, broad-based index funds
and holding them for a long time while avoiding trading.
This argument has a lot of merit.
However, I don't believe active investing vs. passive investing is an either/or proposition.
There is room for both strategies in an investor's portfolio.
Some of Morningstar's criteria could be very useful when selecting actively-managed funds:
• Cheapest expense ratio in M* category.
• Manager investment of more than $1M.
• M* Risk rating lower than high.
• M* Parent Pillar rating better than average.
Like most everything else related to investing, there are no guarantees of future success...
It's extremely difficult to add alpha here—especially when a select few companies
are responsible for much of an index's overall performance.
Investors seeking actively-managed funds may obtain better relative results
for domestic micro-caps, foreign small-caps, and various fixed income categories.
This assumes that the selected fund categories are a good fit within one's portfolio.
Any dose of Russ Kinnel reminds me of better days at M*.
Then, the Honor Roll stopped working:
Rankings were annual, so the time lag became a problem.
Genuine bear markets were far & few & were substituted by recent bad runs.
Some Honor Roll funds turned out to be turkeys.
The idea wasn't bad and can be applied today too with fund data readily available.
Another idea is just to screen funds for lower volatility and better performance - like Sharpe Ratio sort within the categories.
m* recently dinged primecap for sticking with companies where their lauded active process did not indicate longterm impairment.
momentum factor creep means m* metal ratings are nudging towards index correlation...someone motivated (like iav) should calc this.
In my taxable account, there’s a big bullseye on TAIFX, a 5*fund where those 2 ETFs account for 26% of the fund, which is in essence, a global allocation fund using muni’s as the FI component.
Sounds good to me.
since the latter fund's inception.
Sharpe/Sortino ratios and the max drawdown for VTMFX are slightly higher.
https://testfol.io/?s=avQUZ9dNzV2