2. What are Mutual Funds
โข Investment vehicles comprised of funds collected from
many investors for the purpose of investing in securities
โข Mutual Funds are like pre-packaged portfolios
โข Each fund is structured to match an investment objective
โข For more information see me
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3. Rating Services
โข Professionals pay for service subscriptions which
analyze and rate the health of different funds
o Most popular service is Morningstar
o We will be using Morningstar for our information today
โข Wealth Management firms rely on these services to
provide them with accurate and reliable information
โข It is common for professionals to have subscriptions to
multiple services
o It is best to subscribe to contradicting services to increase exposure
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4. Disclaimer
โข Morningstar can be particularly conservative relative to
competition
โข Neither Morningstar nor its Information Providers can
guarantee the accuracy, completeness, timeliness, or
correct sequencing of any of the Information on the Web
site, including, but not limited to Information originated by
Morningstar, licensed by Morningstar from Information
Providers, or gathered by Morningstar from publicly
available sources. There may be delays, omissions, or
inaccuracies in the Information.
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5. Index vs.
Managed Funds
โข Index funds are generally designed to reflect a specific index
o In our example we will be using Vanguard Total Stock Market Index I
โข Reflects entire U.S. equity market
o Highlighted by low expense ratios, broad diversification, & balanced sector weighting
โข Managed Funds believe they can beat the market
o And they do, sometimes
โข However, due to expenses & variability they generally underperform compared to
Index Funds over time
o Average 1% more in expenses annually
โข Most of our funds will be actively managed, preference of firm
owner
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6. We will be looking at Large
Blend/Growth Funds
โข Our categories
o Morningstar Style Box
o Morningstar Rating
o Sharpe Ratio
o Alpha
o Expense Ratio
o % Rank Cat Average over 5 years
o # of stocks
o Sector Weightings
o Performance compared to S&P
โข We will prefer highly rated funds with high Sharpe
ratios/Alpha, low expense ratios, high diversification, and
balanced sector weightings
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7. The Style Box
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โข Market โCapโ Size
โข Large/Big
โข $10 Billion or greater
โข Medium
โข $2-10 Billion
โข Small
โข $300 Million-$2 Billion
โข Equity Selection
โข Value
โข Stocks trades below believed value
โข Blend
โข Growth
โข Stocks whose earnings are expected to grow
Popularized by
Morningstar
8. Here is our first look
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Fund Name Ticker Morningstar Rating Equity Style
MainStay MAP I MUBFX Bronze, **** Large/Giant Blend
Fidelity Advisor Large Cap I FALIX FALIX Silver, ***** Large Blend
ClearBridge Appreciation I (USD) SAPYX Bronze, **** Large Blend
Artisan Value Fund Investor Shares ARTLX Silver, **** Large Blend
Ivy Large Cap Growth I IYGIX Bronze, ** Large Growth
Hotchkis and Wiley Large I (USD) HWLIX *** Large Value
Artisan Mid Cap Inv ARTMX Silver, **** Mid Growth
Calamos Focus Growth I (USD) CBCIX ** Large Growth
MainStay Large Cap Growth I MLAIX Bronze, **** Large Growth
Guggenheim Large Cap Value A LW (USD) - *** Large Value
Oakmark I (USD) OAKMX Gold, ***** Large Blend
Oakmark II (USD) OARMX Gold, ***** Large Blend
Oakmark Select I (USD) OAKLX Gold, **** Large Blend
Oakmark Select II (USD) OARLX Gold, **** Large Blend
Vanguard Total Stock Market Idx I (USD) VTSMX Gold, **** Large Blend
9. Key Figures/Ratios
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Sharpe Ratio Alpha (standard) Expense Ratio
1.08 -2.8 0.86
3.85 5.14 0.91
1.36 0.75 0.69
1.12 -1.1 1.04
1.1 -1.6 0.88
1.17 -1.11 1.05
1.09 -0.4 1.22
0.87 -4.96 0.9
1.05 -2.9 0.77
0.98 -3.88 1.15
1.41 1.86 0.95
1.39 1.52 1.23
1.29 0.99 1.01
1.27 0.68 1.33
1.25 0.63 0.17
โข Sharpe Ratio
โข Measures risk-
adjusted performance
โข Alpha
โข Measures risk-
adjusted performance
& compares to a
benchmark index
โข Expense Ratio
โข Measure of cost
โข Operating Expenses /
assets avg. $ value
under management
10. Alpha & Sharpe Ratio
โข Alpha
o The excess return of an investment relative to the return of the benchmark index
is its โalphaโ
o A positive alpha of 1.0 means the fund has outperformed its benchmark index by
1%
o Index for these funds: S&P 500
โข Sharpe Ratio
o Measured by subtracting risk free rate (T-Bill) from the rate of return for an
investment and dividing the result by the investmentโs standard deviation
o Tells investors whether an investmentโs returns are due to smart investment
decisions of the result of excess risk
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11. Expense Ratio
โข Measures what it costs an investment company to
operate the mutual fund
โข Index funds take advantage of low expense ratios and
thus do not technically have to outperform Actively
Managed Funds
Operating Expenses
/
Avg. dollar value of its assets under management
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12. Category Ranking
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% Rank Cat Avg (Previous 5 Years)
41.4
19.2
55.2
51.8
55.4
20.4
18.8
61.8
39.2
46.8
22.6
24.6
18.8
21.4
28
Measures a fundโs total-return percentile rank
for the specified calendar year relative to all funds
that have the same Morningstar category.
Best rank is 1, lowest is 100.
Averaged over 5 years.
13. Explaining Morningstar โSuperโ
Sectors
โข Cyclical
o Contents
โข Basic Materials, Financial Services, Real Estate, & Consumer Cyclical
โข Beta > 1
โข Grow/Shrink with the economy
โข Defensive
o Contents
โข Food, Beverages, Tobacco, Household/Person products, etc.
โข Less susceptible to recessions
โข Sensitive
o Contents
โข Communication Services, Technology, Energy, & Industrials
โข Between Cyclical & Defensive
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15. Top Performers
โข Gold
o Fidelity Advisor Large Cap I
o ClearBridge Appreciation I
o Vanguard Total Stock Market Index I
โข Aqua
o Oakmark I, II
o Oakmark Select I, II
โข The โWorstโ
o Artisan Value Fund Investor Shares
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