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Mutual Fund Screening, Recommendations, Analysis, General Information, and Tips This website is not affiliated with Morningstar or Principia Mutual funds are one of humanities greatest inventions. For individual investors, they are by far the best way to invest. If you know how to avoid the bad ones: · There's a fund that specializes in most everything investors want,· they're efficient, · easy to invest in, · easy to sell and you can withdraw small odd dollar amounts anytime, · are inexpensive, · it doesn't cost a lot to get started, nor to add new investments, · they disclose everything and give you all of the information you need, · are highly regulated, · usually behave as they're supposed to, · they lower risk by providing diversification by owning many securities, · one can invest in most of them without paying a financial advisor, · and they allow you to make money while not wasting resources on the futile tasks of timing markets and picking stocks. We offer a spreadsheet with 93 mutual fund picks for investors and financial advisors. It shows the history going back to 2002, and each switch is explained. There is a mutual fund recommendation for each of the 21 asset classes we work with, times five ways of managing money: Fee-based (21), all load mutual funds (21), all no-load mutual funds (21), all index funds (11), and all ETFs (19). We only screen open-end mutual funds, ETFs, and Index funds. There are no funds with back-end redemption fees (B shares) or closed-end funds. If you can't buy a fund selection in your investment account, then you can get a replacement if you buy support. You can get the mutual fund picks separately, or they come with both the model portfolios and asset allocation software. You can buy them just once or subscribe for one year. They're updated monthly, and are usually e-mailed the third week of the month. Mutual Fund Selections for Advisors The fee-based fund picks are for advisors that can buy loaded funds (A shares) at NAV in managed accounts. In other words, the front-end loads are waived so investors don't pay them. Advisors then charge their clients fees as a percentage of assets under management. Fee-only advisors without access to fee-based platforms can use the no-load fund picks or index funds. Advisors working on a commission-basis can use the load fund picks or ETFs. Forget about wasting time trying to choose mutual funds. You need to spend your time managing relationships and building your business. Even if you spent an hour a day at it, the results would still not even be close to our performance. Most planners would be able to get a new client every week with the time they saved by not having to baby-sit mutual funds. So for hardly any money, you get both better fund picks and more time to focus on what's really important. Plus you'll make more money if you get paid via fees or 12b-1 fees, because the more your clients' assets grow, the more money you'll make. You can also forget about taking bad advice from people full of conflicts of interest peddling their fund picks (your BD and their research departments, fund wholesalers, software vendors, fellow advisors, the media, and generic advertising). All they care about is making more money from you. Just compare their recommendations to how well our picks have performed below, and you'll see that you can easily get better performance for your clients by having a true expert pick them. We are totally free of conflicts of interest and all we care about is performance for our customers. These mutual fund selections allow you to easily stop doing business the 20th century way. Everyone will be better off if you just broke the old habit of using American Funds (click to read why that doesn't work anymore). Financial professionals don't need a FINRA Series 7 license to manage money for clients using our investment software with mutual funds. A Series 6 is all that's required. Advisors can use the mutual fund picks to justify trading to compliance, because it has reasons for switches. Once they see what you're doing, they'll leave you alone, because compliance prefers low-turnover asset allocation using mutual funds. On average, one mutual fund changes per month, so you won't get unwanted attention about churning to drum up commissions. Once they see you're fact finding correctly to determine investment risk tolerance, and maybe even using an IPS, they'll leave you alone. So not only will this save you time, money, and work, once you start getting better returns with lower risk, you'll be on everyone's good side. About Screening Mutual Funds Morningstar Principia investment database software is used in the first phase of mutual fund screening. Screening mutual funds is similar to using a strainer to let small stuff get through, while blocking big stuff. One can tell the strainer to stop mutual funds with certain characteristics, letting only ones without them get through. For example, if you tell it to show only Large-Cap Growth mutual funds, it will let 1,900 of the 25,500 funds get through. Then with our screens, less than ten of the 1,900 make it through. These are the candidates for further screening. Only one of the ten will end up being the current pick. Once the initial screening process is complete, getting information Morningstar doesn’t have, is inept at getting, or is outdated further refines it. So we may do more in-depth screening, like calling the fund to get fresh data, and reading internet articles. In case you didn't know, Morningstar does a bad job at maintaining basic, accurate, or fresh data. In 2006 and 2007, about 7% of their monthly returns were wrong, and not fixed until Feb '08. The asset class purity test is the best way to weed out undesirable characteristics in each asset class. Then performance testing over several time frames compares mutual funds against their benchmark. Then several other tests are run to make sure there isn't a rookie manager, the market cap is right, too much is not held overseas, etc. There is no market timing involved in screening mutual funds, so where the markets are, and are expected to be, have zero influence. If you've read other pages of this site, then you may be thinking we're hypocrites, because screening mutual funds is a form of "security selection" and we don't recommend that. It is, but it's within an asset allocation framework. We don't do the hard work, which is the actual security selection (stock picking) and market timing. The fund managers do this. They're the only ones with sufficient resources to succeed at these futile tasks. We don't, your firm doesn't, your BD and their research department doesn't, no TV show, magazine, newspaper, or website does, and you don't; so why keep beating that dead horse? What we're doing is "managing managers." When all of the mutual funds are combined to form an investment portfolio, it's called a Model Portfolio. These asset allocation models are also known as "Funds of Funds." Our screening process is not out to find the mutual fund that will "go up" the most. They are picked to best represent each of the asset classes over the next year or two. The goal is to find the mutual fund that's purest to the asset class, will beat the benchmark index, and will behave most like the asset class. This gives it the highest probability of going down less when the asset class goes down, and up more when it goes up. Mutual fund selection is like trying to herd cats, because "misbehaving" is just their nature. This is mostly because of pressure from their marketing people to do things that will make the fund family the most short-term money. This is to the detriment of fund performance, long-term income, and shareholders' best interests. Mutual fund family managers (not the mutual fund managers) will most always choose to screw up a good mutual fund if they think they can make more money somehow. So diligent analysis is part of a constant baby-sitting job. As you can see on the table of historical returns below and on the asset allocation tutorial page, our screening process enables one to usually get better performance than buying index funds. So the argument that passive investing beats active management after fees is proven false more than 90% of the time. See for yourself by doing the math. Count how many times the index beat the fund in all time frames one year or longer (ignore monthly and YTD as this is too short half of the year). Out of 84 data points, the index beats the fund only between five and ten times on average. This screening process adds value because active mutual fund picks are able to outperform their benchmarks for a year or two. After that, most don't and are replaced. Screening closed-end funds has no predictive ability because the premiums and discounts are too random due to thin trading. A fund rarely lasts more than a couple years before it gets messed up, or a better one comes along. Oppenhiemer Real Asset held the record, as being the Tangibles pick for over six years. Then it strayed from the initial objective, underperformed, and then closed to new investors. So even the best mutual fund families misbehave given enough time. Morningstar's summary mutual fund ranking system (the number of Stars a fund has earned), is not used in our screening process. This system is too flawed, and in our opinion, has no value in the Real World. It seems like they recommend funds and fund managers they personally like, have caught the attention of the press, are famous just for being famous, and more than likely are getting kickback money from. They say there's a formula for earning stars, but some funds don't add up. They also keep touting the same old laggards in the press year after year (like American Funds). So there's more going on than great analytical work when Morningstar recommends a mutual fund. Most of our mutual fund picks have a lot of Morningstar Stars, but very few with the full set of stars pass our screens. Over time we've also seen many funds with the full set of stars underperform when compared against its proper benchmark index. Free tip - just ignore Morningstar Star ratings. Sorry, but we don't sell the actual Morningstar mcr screening files anymore. Our methodology is a trade secret, and all we're going to say is already on this page. Please note that our mutual fund screening process does not look into when capital gains distributions occur. If you buy a mutual fund in a non-tax-qualified account today, and there's a distribution tomorrow, you pay tax on it and get no benefit (other than the increase in basis). This is because the value of the shares will fall by the same amount as the distribution. So before buying a fund in a non-tax-qualified account, you should call and ask when they expect this to happen (usually late fall), so you can wait until after distributions occur. In Addition to these Mutual Fund Selections, there's Also a Personalized Screening Service You can get a unique perspective on any open-end mutual fund for $20 each. Find mutual funds yourself that fit your goals with no conflicts of interest. This way nobody is steering you toward a mutual fund, or mutual fund family, because they'll make money. Then send the mutual fund family name and the mutual fund name (or just the ticker symbol) of each fund you want an opinion on. We'll first see if there are problems finding data. If we can analyze it, then we'll total up your price, and instruct you how to pay. This is a fee-only deal, so we have no affiliation with any Broker Dealer, life insurance company, or mutual fund family. We don't make any money other than the research fee. This means you'll get unbiased opinions because there are no conflicts of interest. What You'll Be Told About Each Mutual Fund: · What asset class the mutual fund really fits into, and not what the mutual fund family or anyone else's hype says. · How the fund stands up to others in its correct peer group, both by Prospectus Objective and Morningstar Category, over several time frames. · What mutual fund we currently recommend in that asset class. · Why the fund doesn't pass our screening process. · If it's an oddball asset class we don't track, then you'll get one recommendation of a better similar mutual fund. · An overall opinion of the fund, and if you should own it or not. If so, how much is too much. · An opinion on why it was recommended by a financial advisor. Miscellaneous Individual investors can use free investment portfolio services from Yahoo and Google to evaluate mutual fund performance. You can input a basket of mutual funds, and it will calculate historical performance of the portfolio. They do a better job of backtesting returns than most discount brokers. So this can be used as a resource for finding mutual fund returns over various time frames without having to spend money on Morningstar or having to call each individual fund company. American Funds investors, and investment advisors that sell them, should read this page. You can hire us to pick mutual funds/subaccounts and build custom portfolios that perform better from limited investment choices in variable annuities, life insurance contracts, and 401(k) plans. Why aren't you taking advantage of this? Send e-mail and if you have an interesting reason, then you may get a freebie. |
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