1. Your Questions About Mutual Funds Ratings
Maria asks…
please give the sites where I can find ratings related to MUTUAL
FUNDS?
Steve Winston answers:
THE BEST site I know of is http://themutualfundstore.com
AND Mr. Adam Bold has a nationally syndicated, call-in radio program.
Thanks for asking your Q! I enjoyed answering it!
VTY,
Ron Berue
Yes, that is my real last name!
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2. Paul asks…
How seriously should we take ratings of mutual funds given by
various websites?
While planning for investment in mutual funds, I often look what return and risk category the
fund falls into as stated by various websites. I also see what "star" category the fund falls into. Is
this method correct? Do all the websites evaluate funds in the same way?
In some cases I find many funds are of five star category but some are rated as superior/elite
etc and others are not rated at all. Why is it so? Also, when I find any fund I have invested, gets
poorer category class, is it time to stop investing in that fund and switch over to some better
one? Or should I wait to see its performance for a little while? after all behavior of equity funds
are to be judged over long time interval.
Steve Winston answers:
I also used star rating of icicidirect and money control as ref. For investment.
I also checked their top holdings.
I checked their past performance for more than five years in SIP and also in point to point
investment.
I also checked fund manager's profile. Fund house is also important.
I believe in investing through SIP only with more than five years investment horizon.
There are some other methods to evaluate funds but that is beyond my scope of knowledge
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3. presently.
Jenny asks…
How to Pick Mutual Funds on MorningStar?
Someone recommended MorningStar site as a place to check for best-rated funds, but it seems
like I have to subscribe to their site to be able to view that information. Is that correct or am I'm
just missing it somehow. How do you go about picking your funds? Are there any good online
sites that you rely upon? I saw one called wikiwealth, but what confuses me is that different
sites have different opinions / ratings on the same fund. Thanks!
Steve Winston answers:
Look at the returns, how the fund performed compared to it's index, expense ratio, the star
rating, etc.
Each site has their own analyst & rating criteria. So it's not likely they will agree. There are many
sites where you can get mutual fund ratings: MSN, Yahoo, CnnMoney, as well as morningstar.
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4. I am a morningstar premium member, so I get access to all their fund information. Agreed, they
don't give out as much FREE INFO as they used to. But you can also get some pretty good
analysis from the other sites. Just might take a little more digging.
Mark asks…
Mutual Funds and dividend yield?
When reading ratings of stock mutual funds in Forbes or Kiplinger's magazine, why is it a
colum is never entered for certain funds for dividend yield?
The mutual fund types in particular I'm asking about are say equity income, balanced funds
where a good portion is put into bonds and say a sector fund of large bank stocks. Especially
now in the bank area where they have tumbled. If a bank still pays same dividend and the price
has gone south a lot, the dividend yield would rise a great deal. So , why do these magazines
not have a of dividend yield for Certain funds?
Steve Winston answers:
For mutual funds, the thing you need to look at is Total Return, not "dividend yield." Mutual
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5. funds make periodic dividend/capital gains distributions, but it does not work like individual
stocks or bonds.
Susan asks…
Is there an ETF or mutual fund based on Morningstar's star
ratings?
Morningstar also maintains a star rating of individual stocks.
Steve Winston answers:
There are at least eight ETF's based on Morningstar ratings. These include
JKI,JKL,JKJ,JKF,JKD,JKG,JKK and JKE. Each is based on a different segment of the market,
such as small cap, growth, etc. Just type in the symbol in yahoo finance, and then click profile to
see what the ETF tracks.
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6. Betty asks…
Mutual funds and Morningstar?
I am trying to figure out how Morningstar rates mutual funds (STARS). I have been looking for
something- expense ratio, past performance, experience of manager, and I am lost. Does
anyone know what they are rating the funds on? Are they getting paid for good ratings?
I appreciate your answers!
Steve Winston answers:
From their webiste: "Morningstar rates mutual funds from one to five stars based on how well
they've performed (after adjusting for risk and accounting for all sales charges) in comparison
with similar funds."
But I've never found anything that actually details their formula. Probably they keep it internal,
and probably even tweak it from time to time. I doubt they are getting paid for ratings, because if
they were and word ever got out, they would go bust the next day and be on the receiving end
of a lot of lawsuits.
One thing to remember is that their ratings are partly based on recent (past) performance. Most
mutual funds have good periods where they outperform the markets, and bad periods where
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7. they underperform it. But if they all end up relatively average in the end, sometimes they get a
high star rating from a recent good period, and then go into a bad period. In the long run they
were average, and you just happened to get in at the wrong time because they've looked so
good recently.
George asks…
When looking at diversification of a mutual fund portfolio, how
many mutual funds should I be buying into?
I am 24 years old and looking at my future investments in my Roth IRA. Right now I own shares
of 3 separate mutual funds, divided equally by initial monetary investment. Ratings below are
from Morningstar.
-FDFFX: Fidelity Independence, a 3-star rated Large Growth Fund.
-FICDX: Fidelity Canada, a 5-star rated Foreign Large Blend Fund.
-HIINX: Harbor International, a 4-star rated Foreign Large Value Fund.
With the upcoming year for contributions of up to $5k, I am looking at the potential of either
buying into 2 new funds (typically most funds I look at have a $2500 buy in), 1 new fund and
adding to my already existing funds, or not buying into any new funds and purchasing only
more shares in my already existing funds (which are a bargain with the market the way it is).
I feel as though buying into 2 more funds is the best bet for this year, but at what point will I
have enough diversification to start reinvesting in already existing good performing funds
versus continually making minimum purchases into new funds?
About me: At 24 years old I am not worried about risk. I prefer extreme risk with the possibility of
extreme gains. Because of this I am looking into this year buying into some Small Cap Value
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8. funds, especially in foreign markets. Right now I'm running a 68% foreign / 26% domestic / 4%
short-term.
I am not specifically looking for a fund recommendation as much as I am overall investing
strategy for the upcoming 3-years with suggestions of fund TYPES that I should be buying into.
Also I wish to know when should I stop buying MORE mutual funds and start reinvesting into
already held high performing funds..if ever. Thanks!
Note: I would like to treat my IRA as if it were in a vacuum. I will be investing into a 457b and a
401a plan this year, but I will be using the same investment strategy as in my IRA (but
purchasing different mutual funds of the same types for stability and diversification).
By vacuum, I mean that I don't want my 457 or 401 to be considered when looking at
diversification...I want each portfolio to be separately diversified. Which I'm actually starting to
think might not be my best option. By actually using my 457 and 401 to purchase funds that
compliment my existing IRA picks, I could get the amount and types of funds I want quicker.
Steve Winston answers:
For diversification, putting it into five or so funds that invest in different types of stocks is best.
You shouldn't put it all into an S&P500 fund, because that fund only represents 500 of the
biggest companies in the United States -- it doesn't cover small-cap stocks or foreign stocks, for
example. You should probably have a large-cap fund, small-cap fund, foreign-stock fund and
maybe a value fund and a growth fund. If you buy to many funds, you are likely to have
overlapping investments and would be less diversified.
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