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Portfolio > Mutual Funds

New Data on Mutual Fund Families May Surprise Advisors

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CFRA, the institutional equity research firm, has just released its asset-weighted ratings on mutual fund families, and some of the results may surprise advisors.

Primecap Management Co., for example, merits a five-star rating while Pimco has a rating below 4. The fund family ratings are a based on CFRA’s ratings of individual mutual funds — 22,000 fund share classes — and asset-weighted, which can be an advantage for some smaller fund families. Primecap Management has the benefit of having just three funds, but each have five stars, while Pimco has 348 funds with various ratings. (The ratings for funds and fund families range from 1 to 5, with five being the best.)

Advisors can use CFRA’s mutual fund data and its latest fund family ratings to gauge both mutual funds and mutual fund families against others and as a second opinion on Morningstar’s ratings, which include both backward-looking fund star ratings and more forward-looking analyst ratings.

Todd Rosenbluth, director of ETF and mutual fund research at CFRA, says that CFRA ratings for funds — the building blocks for the fund family ratings — are based on forward-looking analysis of the securities a fund holds as well as its expense ratio, turnover and manager tenure.

“Whether a fund will go up or down is driven by the the stocks or bonds inside,” explains Rosenbluth. “The same way an advisor will do an analysis of individual stocks — based on earnings, trends, valuation — or of bonds, based on valuation, credit quality and interest rate risk — we’re doing that in our research to make it easier for advisors.”

He noted several similarities and differences between CFRA and Morningstar fund ratings.

(Related: Morningstar Finds Its Analyst Ratings Can Predict Future Performance)

CFRA and Morningstar both have top 5-star ratings for Guggenheim Total Return Bond Instl (GIBIX) and Parnassus Endeavor Investor (PARWX) but CFRA has a five-star rating on MFS Value (MEIAX) and T. Rowe Price Emerging Markets Stocks (PRMSX) while Morningstar gives each four stars. Still, Morningstar gives both funds a silver rating for its analyst rating, which the second highest in that ratings series, indicating Morningstar’s positive outlook.

(Related: How Advisors Really Use Morningstar Fund Ratings)

Perhaps advisors can use both ratings regimes to confirm or question expectations for fund performance. Similar ratings can reinforce their views about a particular fund; different ratings could be signal that more analysis is necessary.


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