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Do you know what your Mutual Funds Own? |
Mark Meyerowitz,Owner,
Meyerowitz Investment Management
Mr. Meyerowitz has been investing since high
school, in the 1970s.
After graduating from Brandeis University in 1977; Mark built up his small family business into a large local retailing company.
From the mid 1990s to early 2003, Mark was a broker with Smith Barney and with Edward Jones; two of the largest invest firms in the nation.
Mark and his family have lived in West Orange, NJ since 1987.
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 Millions of Americans have money invested in mutual funds. Mutual funds are everywhere, in all different types of investment products.
There are literally thousands of mutual funds, and now there are thousands of mutual fund consultants who make a business of advising clients as to what mutual funds they should own. Plus, you can fill you mail box with newsletters about funds.
Evaluating mutual funds has also become big business. We all know the names Morningstar and Lipper. Morningstar created a "star" system of ranking funds: like a restaurant review, the more stars, the better, with 5 being the maximum.
The ranking system is very nice, but it has a major problem: the rankings are based on past performance. If you had a time machine, that would be useful information.
How do you try to evaluate future performance? This is the key question, because you are basically asking which mutual funds you should buy.
Do the stars represent the ability of the fund manager? If they were good in the past, hopefully they will be good in the future. There have been high-star fund that become average funds.
In short, if you are really serious about owning funds, you should not be lazy and simply buy the funds with the highest number of stars. You have to do some work. Here is what I suggest:
Get the most recent, up to date information about the portfolio of stocks or bonds or whatever that the fund owns. Research them. Chart them. Find out what they are doing. If you have some nerve, phone the fund company. Ask the fund manager why he/she bought that holding. If you are lucky, you just might get through to the manager. In fact, a fund company may actually respect the fact that you are calling because so few people actually do. You may find a smaller fund company more responsive than a large company.
Another idea is to check the year by year returns of the fund. If the fund is a steady performer in good years, and holds its value in bad years, you may be on to something more important than the number of stars it carries.
The most important thing to remember is this: you are buying a portfolio of stocks and/or bonds. Forget the stars. Forget the warm and fuzzy pictures of the couple walking hand in hand on the beach. Don't be fooled by the fog. You are investing in a portfolio, and you should like the portfolio before you buy it.
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