In the November issue of Investment Advisor, I wrote about a process I've developed over the past five years to select and monitor mutual funds and ETFs. It's called the Fiduciary Scorecard and like any tool of this sort, the proof is in the pudding. Therefore, I thought I'd look at a few of the funds I selected in January 2012 and examine how they performed for the entire year. I should clarify a few things before we proceed. First, the scorecard measures a fund in relation to its specific peer group. Hence, it's possible that a fund may have performed poorly, but relative to its peers, received a high score. Therefore, category selection becomes an important step.
Overall, I'm pleased with the results. In fact, 70% of all funds finished in the top half of their category. I'll divide the performance according to Morningstar's percentile rank where 1 is the best and 100 is the worst. We'll concentrate on the funds that finished in the top half of their peer group.
Percentile 1-10
Percentile 11-20
Percentile 21-30
| Fund | TICKER | Category | Percentile Rank |
| Fidelity Advisor Emerging Markets | Emerging Market Bond | 21st | |
| Metropolitan West Intermediate Bond | Intermediate-Term Bond | 21st | |
| Nuveen Real Estate | Real Estate | 22nd | |
| PIMCO Global Bond (USD Hedged) | World Bond | 24th | |
| Vanguard's Inflation Protected Securities | Inflation-Protected Bond | 28th |
Percentile 31-40
| Fund | TICKER | Category | Percentile Rank |
| Franklin Templeton Hard Currency | Currency | 31st | |
| PIMCO Unconstrained Bond | Nontraditional Bond | 32nd | |
| PIMCO GNMA | Intermediate Government | 34th | |
| Virtus Emerging Market Opportunities | Diversified Emerging Markets | 35th | |
| Vanguard Short Term Federal | Short Government | 35th |
NOTE: Virtus Emerging Market Opportunities also won Morningstar's Manager of the year in the Emerging Market Stock category.
Percentile 41-50
| Fund | TICKER | Category | Percentile Rank |
| Weitz Short-Intermediate Term | Short-Term Bond | 41st | |
| Arbitrage | Market Neutral | 48th | |
| Royce Special Equity Invmt | Small Blend | 50th | |
| Ridgeworth US Gov Sec Ultra-Short Bond | Ultrashort Bond | 50th | |
| Ridgeworth Seix Floating Rate High Inc | Bank Loan | 50th |
Summing Up
As mentioned earlier, the Fiduciary Score and the percentile rank only indicate how a fund performed relative to its peer group. This does not imply that the funds with the highest Fiduciary Score will provide the best returns. A good example of this is the Arbitrage fund which had a total return of 0.44% in 2012. Clearly not a good return, but it did rank in the top half of its peer group. Conversely, a fund may also have a low score and provide a good absolute return.
In the quest of selecting good funds, I realize there is no crystal ball. However, the aforementioned Fiduciary Scorecard has provided me with a fast, efficient and fairly good selection tool. Going forward, I will be looking for ways to improve it on the margins. I'll keep you posted.
Thanks for reading and have a great week!
For more on Mike Patton's Fiduciary Scorecard tool, view his November 2012 feature story in Investment Advisor; his January 2012 blog on the subject, and the sidebar to a 2009 article on how the Scorecard was developed.
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