Sorting Through ‘No. 1’ Rankings
The mutual fund business, like college football, could probably use a playoff system.
How else can you figure out which fund family ranks No. 1 in overall performance? Several research services and investment advisers have grappled with this difficult question, and the results show how hard it is to pick a clear-cut favorite.
Robert A. Stanger & Co. of Shrewsbury, N.J., named AIM Funds of Houston as leader of the pack. Runner-up on Stanger’s list last month was Founders Group, followed by Financial Funds.
But “Jay Schabacker’s Mutual Fund Yearbook 1991” gives you a different set of winners. The guide lists Columbia Funds of Portland, Ore., in the top spot, followed by Merriman Funds and Scudder Stevens & Clark.
If you heeded Money magazine’s most recent ranking of top fund families--in November, 1990--you would have gravitated toward New York-based Dreyfus. Next best on Money’s list were Capital Research & Management (the American Funds family) and Vanguard Group.
Certainly, it’s tempting to want to identify a No. 1 family. That way, you could combine all your fund investments under one roof, making record-keeping a breeze. “For the lazy investor, this might make sense,” says Jonathan D. Pond, editor of the Wiesenberger Mutual Fund Investment Report and a financial planner in Watertown, Mass. “But I think you’ll generally do yourself a disservice by concentrating all your investments in one family.”
The reason is simple: Although a particular group might have a good lineup of funds, it won’t have top portfolios in every category. In addition to performance, you need to evaluate investment selections, fees, range of services available and efficiency of customer representatives. “Shareholder service is a big issue in choosing a mutual fund, but it’s hard to quantify,” says Don Phillips, editor of Mutual Fund Values, a Chicago-based research publication.
Even in investment performance, where there is plenty of verifiable data, the numbers are open to interpretation. “The time frame chosen can exert a big influence on the results,” Phillips notes. So can other factors.
Stanger rates only those fund companies with at least $500 million in assets. In addition, each family must have funds in three or more investment categories. Stanger analyzes results for 36 months, giving added weight to the past 12.
By contrast, Rockville, Md.-based Schabacker Investment Management in its yearbook evaluated only families with four or more funds, including at least one bond and one equity product. It examined performance over various time frames and deducted front-end sales loads in calculating results. That explains why the top funds in its rankings are primarily no-load groups.
Money magazine primarily evaluated load families and required each group to have funds in six broad categories. Such notable outfits as the giant Franklin Group as well as Twentieth Century Investors were disqualified because, at the time, they lacked an international or global portfolio. Money’s performance rankings spanned “at least one bull and one bear market,” but the magazine didn’t say which periods were used.
As these diverse results show, it’s important for investors to understand how a study was conducted. You should remain skeptical, because fund families that receive favorable ratings often are quick to bandy the results in advertisements and reports to shareholders.
This caveat also applies to individual funds, which might garner a top ranking during one period, only to slip later. Typically, a fund must take big risks to hit the top of the charts in a year or less. “You want the long-term, consistent performers,” advises Carl Camp of Eclectic Associates, a money management and financial planning firm in Fullerton. “The No. 1 funds actually scare me.”
As an alternative to trying to find the best family--assuming that it can be done--you might want to buy mutual funds through a discount brokerage. Pond and Camp recommend this approach because it effectively lets you consolidate your holdings from different companies on a single statement.
In addition, you can switch money between various families more quickly and easily than you otherwise could. Camp considers the discount brokerage route especially attractive for retirement accounts because it’s time-consuming to transfer IRA money from one firm to the next.
The main drawback of a discount brokerage account is cost. You pay a modest commission each time you buy or sell a fund. The cost varies by brokerage and the dollar amount of your transaction. Charles Schwab & Co. charges a minimum $29 to buy or sell a no-load fund; on a load portfolio, you pay this transaction cost in addition to the sales charge.
Unless you find a fund group with excellent products in all the categories you favor, it makes sense to choose from at least two or three companies. “One advantage of mutual funds is that you don’t have to buy the whole family,” Phillips says. That allows you to build an all-star lineup rather than pinning all your hopes on just one team.
The Best Families: One Version
Here’s how one research outfit, Robert A. Stanger & Co., rates mutual funds by overall performance. Stanger keys on investment returns during the previous 36 months. For any survey of this type, results will vary according to the period studied and other factors.
Number of Sales Charge Family Funds Rated Per Fund Phone 1. AIM Funds 5 1.75%-5.5% 800-347-1919 2. Founders Group 7 0% 800-525-2440 3. Financial Funds 15 0% 800-525-8085 4. AMEV Funds 6 4.5%-4.75% 800-800-2638 5. Fidelity Investments 75 0%-3% 800-544-8888 6. SEI Funds 10 0% 800-342-5734 7. Phoenix Series 7 4.75% 800-243-4361 8. American Capital 7 3%-8.5% 800-421-5666 9. CIGNA Funds 4 5% 800-572-4462 10. Oppenheimer Funds 17 4.75%-5.75% 800-525-7048
