We came across a MarketWatch.com article recently that posed the question “Why won’t your mutual fund tell you what it owns?” This article raises some very good questions, not only about mutual fund reporting, but also the manner in which investors should analyze mutual funds.
Per How to Make Money Picking Stocks, our models focus on quantifying the expectations for future cash flows embedded in the market price or any target price. Our goal is to help clients identify and measure differences between their expectations for future cash flows and the market’s expectations. This post explains how we use our…
Our research with ETFs is very unique because we’re actually basing our ETF ratings on the stocks that the ETF holds.
QUESTION: Why should fund investors rely on backward-looking NAV trends?
ANSWER: They should not.
New Constructs assigns a rating to every stock under coverage according to what we believe are the 5 most important criteria for assessing the risk versus reward of stocks. New Constructs’ stock ratings are regularly featured as among the best by Barron’s.
The Portfolio Management Rating of a fund is based on the aggregated ratings of the securities it holds as well as its overall Asset Allocation. When analyzing equity funds, we use New Constructs’ stock ratings, which are regularly featured as among the best by Barron’s over the past three years.
Total Annual Costs used to rate a fund’s expenses reflects the all-in cost of a minimum investment in each fund assuming a 3-yr holding period, the average holding period for mutual funds.
This rating reflects all expenses, loads, fees and transaction costs in a single value that is comparable across all funds.
Our goal is to give investors as accurate a measure as possible of the cost of investing in every fund to determine whether this cost of active management is worth paying.
The Fund Asset Allocation Rating informs investors of each fund’s level of allocation to cash (non-equities) as well as how that level compares to other equity mutual funds.
We assume investors in equity funds prefer those funds to be maximally invested in equities given that investors can much more cheaply invest in cash on their own. We do not believe that most investors want to pay the high fees associated with equity funds to invest in cash.
Accounting data was not designed for equity investors, but for debt investors. “Earnings, earnings per share and earnings growth are misleading measures of corporate performance.”(from page 66 in The Quest For Value by Bennett Stewart, Harper Collins 1991.)