By Todd Rosenbluth
CFRA’s forward-looking mutual fund star methodology has been used in the wealth management industry since 2009. We provide insight into, not only a fund’s relative performance success, but what’s inside and how much the fund costs.
In a study based on CFRA mutual fund ratings as of January 31, 2018, we highlight:
- What makes our star rating on more than 22,000 mutual funds unique.
- How 22 of the 25 largest mutual fund managers had an asset-weighted star rating of 3.5 out of a possible 5 stars.
- Certain firms with $10 to $100 billion in assets had a high number of top-rated funds; moderately-sized firms did not rate as well.
Not a rearview mirror approach
CFRA ratings leverage CFRA’s 75-member analytical team to provide an independent review of the holdings, and combine this analysis with fund attributes, including its risk-adjusted record under current management and its expense ratio. Investors can’t rely solely on a backward analysis when rating funds.
Large firms can benefit from scale
Some of the larger asset managers, such as Vanguard benefit in CFRA’s star methodology in part for the low expense ratios and turnover rates for their index equity and asset allocation mutual funds. Examples of such CFRA five-star rated funds include Vanguard Dividend Appreciation Index (VDADX) and Vanguard Large-Cap Index (VLCAX).
However, top-10 firms, based on assets under management, such as MFS Investment Management and T. Rowe Price, tend to charge higher fees for their active funds than their index offerings, but lower fees than the average fund. Still, their ratings were aided by strong security selections and performance success. The CFRA five-star rated funds from these firms include MFS Value Fund (MEIAX) and T. Rowe Price Emerging Markets Stock Fund (PRMSX).
Moderately sized firms benefit from a high-quality portfolio
Additional firms with total assets under management between $10 billion and $100 billion rate well to CFRA. In addition to strong risk-adjusted records, these firms benefit from CFRA’s focus on the risk attributes of holdings. Examples of their five-star funds include Davis Financial (DVFYX), DoubleLine Low Duration Bond Fund (DLSNX), Guggenheim Total Return Bond Fund (GIBIX), Harding Loevner Global Equity Portfolio (HLMGX) and Parnassus Endeavor Fund (PARWX).
To see the full study, contact [email protected].
Todd Rosenbluth is the director of ETF & Mutual Fund Research, CFRA.