Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Mutual Funds

My Personal Fund Screening Process

Your article was successfully shared with the contacts you provided.

There are nearly 32,000 mutual funds (all share classes) and over 1,900 ETFs, according to Morningstar, Inc. Then there are closed-end funds, UITs, individual stocks and bonds and a host of other securities. How do you, as advisor, stay abreast of this massive universe? In this post, we will discuss a few things you may want to consider.

When I began my journey as an independent advisor in 2007, I quickly realized this is an issue of great importance. Being somewhat of a data nerd, to solve this dilemma I created a Fiduciary Scorecard.

I considered every data point available in the Morningstar Advisor Workstation database and selected the 25 to 30 I deemed most relevant. From there, I used Microsoft Excel formulas to crunch the numbers and produce a total score for all mutual funds and ETFs.

It should be noted that I use trailing five-year data and each fund is compared only with funds in its specific Morningstar category. Hence, I am not comparing apples to oranges, except perhaps when a Morningstar category contains an eclectic group of funds, such as Nontraditional Bonds or Multi-alternative funds. Here are the broad categories I use in my Fiduciary Scorecard analysis: 

1) Risk (Absolute)

2) Risk (Relative)

3) Performance (Relative)

4) Performance (Pure)

5) Stability

6) Expenses

As an example, if a fund received the maximum number of points on each data point, its Fiduciary Score would be 100%. If a fund does not have data for all five years, it is not penalized. In short, a fund’s score is based on the following formula:

Total Points

Total Points Possible

The first step is to determine the Morningstar category I need to search and run a very basic screen in the Morningstar tool. The survivors are entered into the Fiduciary Scorecard tool in Excel. Depending on the category, there may be hundreds of funds to score. After selecting the highest scoring funds, there are several things to consider. For example, how much of the fund is owned by its management? What is the max drawdown for each fund and is there a significant difference? There are many others, but this should convey the idea.

This was a brief summary for the selection of mutual funds and ETFs only, which is just one of many ways to approach the subject. I would be cautious about accepting a fund recommendation from anyone who may be biased in some way.

For example, many fund wholesalers are honest and their recommendations can be trusted. On the other hand, some are simply trying to boost sales. The key is to find a good security-selection process that works for you. 

Until next time, thanks for reading and have a great week!


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.