How To Analyze Mutual Fund Performance ?
Almost every one of us want to make money but the problem is of time and frequency, also many of us find it difficult to track our portfolio on the daily basis and pick and sale stocks,analyze them,understand the market movements etc. In my view it is a cumbersome job for a individual who have to go for job.So there comes only one solution in mind that is mutual funds.
As it is now the responsibility of fund manager to deliver the results on your money.But again there is one problem how can we choose the mf’s,i mean it is not a easy task to choose from thousands of them. It makes decision making quite confusing.
It made a good figures past month should i go for it ?
Well we see stats on many of the websites which provide the data on the mf’s past performance and also rating on basis of it.But you should be careful before you make a decision based on those stats.
Why ? because Mutual fund rating services are good data collectors but lack any real sophistication in fund analysis.They get that data which are provided to them by the managers or the marketing/public relations persons.When purchasing a mutual fund, you are hiring a management team to pick securities for you.
So you should not only think about ratings only but also the management and analysts which are working on it. Thanks to some services such as morningstar which takes these things more seriously and rate the funds accordingly. Have a look at the category performance here
http://news.morningstar.com/fundReturns/CategoryReturns.html?fsection=ListCatPerformance
If your fund is not performing well then look for reasons. If you have picked up a mf on the basis of category or sector specific or equity growth or debt, then these things will effect a lot on its performance.
Do we completely ignore past results ?
No i am not saying it that we should do that, but we all know that past performance isn’t a true indicator of future results, but it’s still tempting to focus on a fund’s recent past.
Compare the fund performance at the time of market distress it will show how much it have the downside risk.
Costs and fees
Fund’s costs and factors that can affect fees, such as asset size.Along with it Transaction costs, including brokerage commissions and the market impact of large or illiquid trades can also effect your fund’s returns.
It is mandatory for mutual fund companies to specify where the funds will be invested.Will they go for large or small cap companies. It might happen that some managers go for those sectors in which they are experts though it may lead to limited possibilities for better returns and involves more risk. You can use yahoo or msn analytical software to determine the sector weight.
Attribution Analysis and Fund Mangers Performance
Attribution analysis evaluates a portfolio manager’s performance by determining how much return was from security selection and how much was from allocation/market timing. The total return is compared to a predetermined benchmark portfolio.
Best Research Tools Available
Morning Star : They can be said as pioneers in this work,there are useful research reports, portfolio trackers and articles available on the site — some free of charge and others for a subscription fee.
Yahoo Fund Screener
Can help you select the funds based on different options ,While it uses the same data of morning star
http://screen.yahoo.com/funds.html
http://screen.morningstar.com/FundSelector.html
Lipper : It is a global leader in supplying mutual fund information and fund ratings.It is useful to both professional mutual fund advisors and individual investors. Lipper rates mutual funds compared to their peers and provides an instant measure against five metrics — total return, consistent return, preservation, expense, and tax efficiency.Online WSj fund screener uses their scorecard for calculating fund performance.
http://www.lipperweb.com/