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I haven't explored the data protocols that produce the owl list, but the fact that PRBLX doesn't make the list suggests to me that the protocols might underweight down-market performance in some way ... just a thought.
What AJ said. GO clearly misses too much that is genuinely important. I have long thought this. If I were some prudent value-oriented downside-protection-seeking active investor who, having studied many other mfund sites including even CU, and thus owned TWEIX, AMANX, GABEX, SSHFX, and GABSX --- much less PRBLX! --- and heard about and came to this increasingly respected site to see what the savvies here thought of my holdings, and perhaps whether I should choose among them and/or consolidate, and I found *none* of these, none, well, I would simply go, Yeah, right, so much for MFO.
@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.
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.
I don't hold most of these, actually. But if I did, any congrats on my savviness would be the result of my having studied sources other than GO, right?
I go to GO to see what's what, since you undertake such vast labors. But it's harder to fathom than M* (while way easier to use than LipperLeaders, which is nightmarish). Yet say I newly want to see your strict, independent creme de la creme assessment, since I've already heard elsewhere about looking at Amana and Gabelli and SoundShore and Parnassus, and how they perform well with reduced risk. And they're nowhere to be found, while so many others are, almost inexplicably, it seems. (I say almost because I do study your explanations and criteria.)
Another problem is awarding GO status to short-lived entities. Newbies, seriously? Look at your far-right cols. Perhaps *Strong Fledglings* would be more appropriate for a large percentage of the GO list. Owls connotes steady wisdom, or something, does it not? FPACX, for example, as many point out ... but another striking omission. Still another problem, and this one's related to newbiness, is the Maxdd date. Seems to me your selection criteria make for recency problems, and vice-versa: many Owls are, frankly, untested. Winners all, it says, gosh, but no wonder: it's the result of easy flying. I want to know how the Owls flapped or hunkered in really rough weather. I want to see how my managers did from, say, spring '07 to end of '11.
Great Owls seems a misnomer, then, just as marketing. And without exactly putting words in AJ's mouth but expanding on his implied point, I'd suggest that any system with this sort of promotional name that cuts (doesn't capture with its criteria) Romick, Gabelli, Amana, Parnassus and the like needs some serious tweaking.
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:
@davidmoran. Hey, MFO rating system is backward looking and strictly by the numbers. It is based on parameters typically not published much, like max drawdown. Some folks find it helpful. I certainly do. But like any system, you need to sensitive to just what is being rated. Then apply appropriate weighting factors.
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.
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.
@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.
@davidmoran. Thanks man. Glad to see you liking Accipiter's Miraculous Multi Search tool.
Yeah, on the ratings, I think you are suggesting that you want something future looking, kind of like the M* metal system?
Ha!
Well, I'd rely on David's profiles, M*'s analysis, fund prospectus, good advice on the board, MFO GO ratings, PM teleconferences and commentaries, fund house, etc, etc.
Charles, yes, that appears to make MFO internal-logic sense for PRBLX on the basis you state, but in the case of comparison with SMVLX, you've given the latter a rating only over a period during which, simply by its structure, it would be very surprising if it wasn't doing great things.
I just strongly think the MFO GO numerical system doesn't capture what the two funds are doing and how they perform, and M*'s Return:Risk:Stars numerical system more or less does capture it.
I do very much appreciate the work you've put into MFO; I don't want that to be misunderstood.
As another voice, I've found it hard using the MFO evaluation system to compare funds that have different lifespans. All the information is excellent and much is hard to find anywhere else, but for comparison between funds I usually only use it when they are similar ages.
@jlev. Absolutely agree. The return groups are directly comparable, but otherwise, the age groups need to be same to compare other metrics. That's something we are working on.
I just strongly think the MFO GO numerical system doesn't capture what the two funds are doing and how they perform, and M*'s Return:Risk:Stars numerical system more or less does capture it.
I just as strongly disagree.
If you want to send me data highlighting your issue, I'd be happy to review and share the findings.
Otherwise, yes, let's agree to disagree on this topic and move on.
>> I think you are suggesting that you want something future looking, kind of like the M* metal system? Ha!
Of course not. I am interested chiefly in downside protection.
>> One big reason we gravitated toward the MFO ratings methodology was because of the emphasis on drawdown. A parameter that I think gets kind of swept under the rug.
Uh, well, see end query.
>> And Martin is typically not published.
Is there a reason to look at it and not Ulcer? Can you expand on them?
>> M* has PRBLX risk at 1 or "Low", while MFO has it as 4 or "Aggressive." The difference here is MFO's system is hypersensitive to risk and all funds are rated against market,
If you say so. Hypersensitive to risk, huh. See below.
Let me try to turn this dialog around and get you to understand the concern perhaps more starkly.
Your savvy and market-watching mother is planning for retirement and has been reading up on other famous unnamed websites about, say, PRBLX and FPACX. Great funds, everyone agrees, Ahlsten and Romick.
She also knows you are a true database expert in exactly this area.
So she goes to check out your Owls but does not find PRBLX. Fine, she says, I didn't really want some all-equity mfund anyway, I want a nice smartly run balanced fund. So she looks for FPACX. It ain't there either. She does see BUFBX, though.
So she thinks, okay, I will put my 300k all in that one. But first I want to check how the two of them did from *summer '07 to spring '11*, cuz I sure do remember how awful and gutwrenching that time period was, and in my dotage I have to feel that my mfunds are probably going to do well and recover with some alacrity, getting back to level.
Guess what she finds when she compares FPACX and BUFBX since 2007? Not that long ago. She calls you and asks, in her maternal way, wtf?
What do you say? 'It's all numerically driven, mom?' 'You don't understand what an Owl stands for?' 'We emphasize drawdown smarter than others?'
Wait, what?
So ... what's your answer to her?
I think GO needs serious tweaking. I have spent a career mostly working with engineers and similar getting their data to reveal patterns and scrutinizing patterns to uncover the underlying data. As the departed AJ put it, 'I just strongly think the MFO GO numerical system doesn't capture what the two funds are doing and how they perform ... '
Your intellectual work is immensely worthy. Immensely. I trust you can take these pointed queries usefully as appropriate.
It is often well and good to re-interrogate analysis, and former conclusions drawn from it, to see if Mother Time has played a trick on you, or if something to which you gave greater weight in the past has proven to be not so very important. Chew the fat, stimulates the white matter. Thanks, guys, for taking an exemplary walk on the Higher Plateau today, a place where we should all reside to be more successful.
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; if history repeats, then the numbers about which you're arguing, and their meaning re. who should and should not receive a merit badge, have to do with a fund....... that no longer exists. Like others, Parnassus essentially has stated that, for the foreseeable future, market changes have progressed to the point where they no longer believe they can meet the income mandate of the prospectus and so they don't intend to try (and they no longer want their investors to falsely believe they do intend to try, by keeping the name Equity Income in place). And I think this is probably the most honest thing they could have done.
The number of times I have talked myself out of investing in this fund is almost laughable (strike that--- it is laughable). It always came close to meeting my expectations for an EqInc fund in my collection, but there was never a cigar, because I pined for the EqInc days of the 1980s and those days are long gone. For those fully invested, who have a good base, it probably is a LT keeper, and I envy you a little. It probably will remain in LgValue/LgBlend territory. But I suspect the way it will move will change; it will not be the same fund.
@heezsafe what do you think the name change in PARWX signifies? From equity income to core seems to imply a change in focus perhaps. But the change from workplace to endeavor seems more ambiguous. So I'm not sure how much more the one means than the other in terms of investment philosophy change.
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.
Not to badger, but can you explain the Romick / Buffalo discrepancy (see the last 7y continuous) in terms of Martin? It seems inexplicable that one, worse dip and worse recovery and worse performance since, is a Great Owl when the other, lesser dip, better recovery, better performance since, is not. Numbers only, MA grouping. Don't care about the other stuff unless manager change.
After you explain this in terms of whatever, I will stop with the 'urge you to modify the GO methodology'.
Guess what she finds when she compares FPACX and BUFBX since 2007? Not that long ago. She calls you and asks, in her maternal way, wtf? Here's my 2 cents fwiw. Your data mining so to speak. If your looking at putting all your money in one fund based on the GO, God help you !!! Have a nice Sunday, Derf
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:
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.
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.
@mrdarcey Thanks for that. I wouldn't have expected, esp. given @jlev notice that they had also changed the symbol, as if to make it crystal clear a fundamental change in modus operandi were henceforth in place. Are you sure you're looking at the most current prospectus, and supplementals to it? hmmm, we'll see, Time will tell.
@heezsafe I owe an apology. I meant to say that both PRBLX and the fund PARWX were undergoing renaming. Not that the equity income fund was also having the symbol change. Sorry for causing confusion.
@heezsafe As far as I'm aware the materials are the latest. The dividend paying requirement remains listed on their website as well. In the last annual letter Parnassus' head wrote about how well PRBLX had done last year, and how it wasn't just a downside protection fund. I suspect any change was just marketing related.
I think @jlev is talking about a different fund as well. No symbols changed that I am aware of.
PRBLX changed from "Equity Income" to "Core Equity". The focus remains on dividend payers.
PARWX changed from "Workplace Fund" to "Endeavor Fund". This fund focuses on companies with "outstanding workplaces." Also historically a good fund, but with more volatility.
PRBLX remains a workhorse in my and dear fiancee's portfolios, though I've recently started with individual positions in my Roth. The size worries me more than the name.
Comments
Here status as of 1Q14:
http://www.mutualfundobserver.com/fund-ratings/?symbol=PRBLX&submit=Submit
Right, it just misses cause the 5 year returns "only" rate a 4 (4th quintile).
But, by the numbers, PRBLX is excellent, GO or not.
Give me a minute and I will look at the cycle and life time numbers.
Cheers, AJ
If you are interested, here's link to methodology: http://www.mutualfundobserver.com/2013/06/ratings-system-definitions/
@davidmoran. 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.
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.
I go to GO to see what's what, since you undertake such vast labors. But it's harder to fathom than M* (while way easier to use than LipperLeaders, which is nightmarish). Yet say I newly want to see your strict, independent creme de la creme assessment, since I've already heard elsewhere about looking at Amana and Gabelli and SoundShore and Parnassus, and how they perform well with reduced risk. And they're nowhere to be found, while so many others are, almost inexplicably, it seems. (I say almost because I do study your explanations and criteria.)
Another problem is awarding GO status to short-lived entities. Newbies, seriously? Look at your far-right cols. Perhaps *Strong Fledglings* would be more appropriate for a large percentage of the GO list. Owls connotes steady wisdom, or something, does it not? FPACX, for example, as many point out ... but another striking omission. Still another problem, and this one's related to newbiness, is the Maxdd date. Seems to me your selection criteria make for recency problems, and vice-versa: many Owls are, frankly, untested. Winners all, it says, gosh, but no wonder: it's the result of easy flying.
I want to know how the Owls flapped or hunkered in really rough weather. I want to see how my managers did from, say, spring '07 to end of '11.
Great Owls seems a misnomer, then, just as marketing. And without exactly putting words in AJ's mouth but expanding on his implied point, I'd suggest that any system with this sort of promotional name that cuts (doesn't capture with its criteria) Romick, Gabelli, Amana, Parnassus and the like needs some serious tweaking.
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:
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.
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.
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...
Yeah, on the ratings, I think you are suggesting that you want something future looking, kind of like the M* metal system?
Ha!
Well, I'd rely on David's profiles, M*'s analysis, fund prospectus, good advice on the board, MFO GO ratings, PM teleconferences and commentaries, fund house, etc, etc.
One big reason we gravitated toward the MFO ratings methodology was because of the emphasis on drawdown. A parameter that I think gets kind of swept under the rug. And, Martin is typically not published. (A little more from Peter Martin here: http://www.mutualfundobserver.com/2013/06/timing-method-performance-over-ten-decades/.)
That said, it's strictly historical. A good place to start and data I certainly want to know. But just that.
I just strongly think the MFO GO numerical system doesn't capture what the two funds are doing and how they perform, and M*'s Return:Risk:Stars numerical system more or less does capture it.
I do very much appreciate the work you've put into MFO; I don't want that to be misunderstood.
Signing off on this thread,
AJ
If you want to send me data highlighting your issue, I'd be happy to review and share the findings.
Otherwise, yes, let's agree to disagree on this topic and move on.
Of course not. I am interested chiefly in downside protection.
>> One big reason we gravitated toward the MFO ratings methodology was because of the emphasis on drawdown. A parameter that I think gets kind of swept under the rug.
Uh, well, see end query.
>> And Martin is typically not published.
Is there a reason to look at it and not Ulcer? Can you expand on them?
>> M* has PRBLX risk at 1 or "Low", while MFO has it as 4 or "Aggressive." The difference here is MFO's system is hypersensitive to risk and all funds are rated against market,
If you say so. Hypersensitive to risk, huh. See below.
Let me try to turn this dialog around and get you to understand the concern perhaps more starkly.
Your savvy and market-watching mother is planning for retirement and has been reading up on other famous unnamed websites about, say, PRBLX and FPACX. Great funds, everyone agrees, Ahlsten and Romick.
She also knows you are a true database expert in exactly this area.
So she goes to check out your Owls but does not find PRBLX. Fine, she says, I didn't really want some all-equity mfund anyway, I want a nice smartly run balanced fund. So she looks for FPACX. It ain't there either. She does see BUFBX, though.
So she thinks, okay, I will put my 300k all in that one. But first I want to check how the two of them did from *summer '07 to spring '11*, cuz I sure do remember how awful and gutwrenching that time period was, and in my dotage I have to feel that my mfunds are probably going to do well and recover with some alacrity, getting back to level.
Guess what she finds when she compares FPACX and BUFBX since 2007? Not that long ago. She calls you and asks, in her maternal way, wtf?
What do you say? 'It's all numerically driven, mom?' 'You don't understand what an Owl stands for?' 'We emphasize drawdown smarter than others?'
Wait, what?
So ... what's your answer to her?
I think GO needs serious tweaking. I have spent a career mostly working with engineers and similar getting their data to reveal patterns and scrutinizing patterns to uncover the underlying data. As the departed AJ put it, 'I just strongly think the MFO GO numerical system doesn't capture what the two funds are doing and how they perform ... '
Your intellectual work is immensely worthy. Immensely. I trust you can take these pointed queries usefully as appropriate.
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; if history repeats, then the numbers about which you're arguing, and their meaning re. who should and should not receive a merit badge, have to do with a fund....... that no longer exists. Like others, Parnassus essentially has stated that, for the foreseeable future, market changes have progressed to the point where they no longer believe they can meet the income mandate of the prospectus and so they don't intend to try (and they no longer want their investors to falsely believe they do intend to try, by keeping the name Equity Income in place). And I think this is probably the most honest thing they could have done.
The number of times I have talked myself out of investing in this fund is almost laughable (strike that--- it is laughable). It always came close to meeting my expectations for an EqInc fund in my collection, but there was never a cigar, because I pined for the EqInc days of the 1980s and those days are long gone. For those fully invested, who have a good base, it probably is a LT keeper, and I envy you a little. It probably will remain in LgValue/LgBlend territory. But I suspect the way it will move will change; it will not be the same fund.
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.
Numbers only, MA grouping. Don't care about the other stuff unless manager change.
After you explain this in terms of whatever, I will stop with the 'urge you to modify the GO methodology'.
Here's my 2 cents fwiw. Your data mining so to speak.
If your looking at putting all your money in one fund based on the GO, God help you !!!
Have a nice Sunday, Derf
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®ion=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.
I think @jlev is talking about a different fund as well. No symbols changed that I am aware of.
PRBLX changed from "Equity Income" to "Core Equity". The focus remains on dividend payers.
PARWX changed from "Workplace Fund" to "Endeavor Fund". This fund focuses on companies with "outstanding workplaces." Also historically a good fund, but with more volatility.
PRBLX remains a workhorse in my and dear fiancee's portfolios, though I've recently started with individual positions in my Roth. The size worries me more than the name.