This document discusses visualizing mutual funds through various techniques. It begins with an overview of mutual funds and their growth, noting there are now over $11.6 trillion in assets across 7,600 funds. It then discusses objectives of mutual fund research like identifying superior long-term performers and understanding risk profiles. Several visualization techniques are presented, including style boxes to classify funds and rolling returns to evaluate performance over various time periods. The importance of analyzing different market cycles is also highlighted.

1. Presented by
Gunjan Banati
VISUALIZING THE
WORLD OF MUTUAL
FUNDSFUNDS

2. Recently joined ; a value-
oriented, small-cap investment advisor based in
NYC.
Founded 40 years ago by Chuck Royce;
HI, I’M GUNJAN BANATI!
Founded 40 years ago by Chuck Royce;
one of the pioneers of small-cap value
investing.
My role: Fund Research and Analytics
Previously at ; a boutique
financial planning firm based in Pittsburgh, PA.
My role: Director of Research

3. What is a mutual fund?
A mutual fund is a regulated collective investment
vehicle that pools money from many investors to
purchase securities.
Most mutual funds are “open-ended”, meaning
THE BASICS
Most mutual funds are “open-ended”, meaning
investors can buy or sell shares of the fund at any
time.
There are 4 main categories of funds; money market
funds, fixed income funds, equity funds and hybrid
funds.
In this presentation we will focus only on equity
mutual funds.

4. GROWTH IN THE MUTUAL FUND
INDUSTRY
10,000.00
12,000.00
14,000.00
Total net assets (Billions of dollars)
Number of funds
As of 12/31/2011 Mutual Fund assets reached
$11.6 trillion invested in over 7600 funds.*
0.00
2,000.00
4,000.00
6,000.00
8,000.00
1940 1950 1960 1970 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
$11.6 trillion invested in over 7600 funds.*
*Data provided by the Investment Company Institute

5. With $11.6 trillion in assets and
Over 7600 mutual funds with
Over 22,000 share classes and
Over 6000 statistical and qualitative data
THE MUTUAL FUND INDUSTRY
Over 6000 statistical and qualitative data
points available for each of these portfolios
We need visualization techniques to help
analyze, develop and communicate decisions
effectively.

6. To identify funds with superior and
consistent long-term performance
Understand the risk profile of each strategy
and the markets in which they will
OBJECTIVES OF MUTUAL FUND RESEARCH
and the markets in which they will
outperform and underperform
Understand how to incorporate the fund
into a client’s portfolio (asset allocation
model)

7. Mutual fund
investment style was
standardized by
Morningstar and
classifies funds
MUTUAL FUNDS HAVE STYLE
classifies funds
according to market
capitalization
(vertical axis) and
growth & value
factors (horizontal
axis).

8. The style box is a very simple, holdings based,
point in time snapshot of how a fund is
invested.
You might want to know how this has changed
VISUALIZING STYLE
You might want to know how this has changed
over time.
You might want to look at a return’s based
holdings analysis.
This statistical technique deconstructs the
fund’s returns using style based indexes.

13. The most common method of evaluating
performance is through calendar year returns.
VISUALIZING PERFORMANCE
Few investors will ever buy mutual funds on
New Year’s Eve and then sell them exactly 1
year later.

14. Trailing returns ending last month or last
quarter are the most commonly available and
easily comparable results.
These arbitrary periods drive investor
decisions and flows everyday.

15. Given that investors will buy and sell at any time
throughout any given year, we think it makes sense
to examine performance over a larger series of
dates.
Rolling returns are our preferred measure because
ROLLING RETURN METHODOLOGY
Rolling returns are our preferred measure because
they offer an accurate and in-depth picture of a
portfolio’s performance.
Rolling returns account for the fact that investors
typically did not invest at the beginning of the
current three- or five-year period but instead are in
fact investing over many periods.

16. 3-year rolling returns calculate all of the three-
year periods, starting not only in January, but
also in February, March, April, etc.
Similarly, a 5-year rolling return accounts for all
ROLLING RETURN EXPERIENCE
Similarly, a 5-year rolling return accounts for all
of the five-year returns beginning at a given
inception date and advancing one month
sequentially.
This method allows an investor to evaluate the
consistency of a fund’s performance over time.

21. Isn’t the world different now?
How will portfolios endure in the current market
environment?
INVESTING IN TODAY’S MARKET
Evaluating Market Cycle Performance is one
way to see how funds will perform in different
markets
Focusing on Down Capture and Down Market
performance in particular

24. In this presentation we walked through a few of
the statistical and visualization techniques one
can use for selecting mutual funds.
When evaluating performance we focused on
historic performance trends, please keep in
CONCLUSION & Q&A
historic performance trends, please keep in
mind that past performance is not necessarily
indicative of future results.
There is also a large component of qualitative
research that goes into fund selection, which we
did not touch upon.