Nov. 5, 2009 (PR Newswire) --
NEW YORK, Nov. 5 /PRNewswire/ -- The old adage "past performance is not indicative of future results" rings true loud and clear in today's market. This premise, which appears in much mutual fund marketing, is why Standard & Poor's Equity Research uses a quantitative holdings-based, holistic ranking approach in ranking mutual funds. For investors seeking a mutual fund positioned to recover following the bear market of 2008 and early 2009, a backward looking ranking approach to investing in mutual funds brings with it added challenges.
As an example, S&P five-star ranked White Oak Select Growth Fund (WOGSX $31.65) finished 2008 down 41%, largely in line with its large cap growth peer group. The mutual fund's longer-term track record was uneven at best, with bottom quartile performance in 2004, 2005, and 2006, making it easy to ignore the mutual fund and seek other alternatives.
But since then, the mutual fund's performance has improved and, so far in 2009, the mutual fund has outshined its peers. Through October, the fund was up 43%, compared to a 24% gain for its peers. But that still is just the past and tells investors nothing about how the mutual fund is positioned for performance, or risk, or about its costs.
To rank equity mutual funds, S&P Equity Research uses a quantitative holdings-based ranking methodology, which leverages the stock and fixed income research of S&P. Inputs include the qualitative S&P STARS recommendations and quantitative S&P Fair Value rankings for stocks, along with S&P Credit Ratings, assigned by S&P Ratings Services, which operates independently from S&P Equity Research. The credit ratings serve as a risk component. We combine this analysis with a fund's relative cost factors, including expenses and turnover, and its performance track record, to rank nearly 20,000 mutual funds.
For more details on the S&P Mutual Fund Methodology, click on http://www2.standardandpoors.com/spf/pdf/equity/MFMethodology.pdf.
A closer look at White Oak Select Growth, a concentrated mutual fund with only 22 holdings as of June 2009, reveals why the mutual fund stands out versus similar mutual funds. To S&P Equity Research, the mutual fund has positive inputs from S&P Fair Value and its 3-year performance versus peers. In addition, the mutual fund's top 10 holdings included 4-STARS Cisco [CSCO 24 ****] and Broadcom [BRCM 27 ****], with 58% of total assets in info technology stocks. But, this mutual fund is not just an info technology mutual fund, as it owned stocks in other sectors, including biotechnology company Amgen [AMGN 54 ****] and financial company Charles Schwab [SCHW 17 **].
From a risk perspective, S&P Equity Research views positively the mutual fund's manager tenure--manager Oelschlager has been at the helm since the early 1990s--and WOGSX's above average Sharpe ratio that in our view shows that the mutual fund has distinguished itself on a three year basis with its risk-adjusted past performance. Of course, past performance is no indication of future returns. However, we note the mutual fund's higher standard deviation, which indicates to us that the performance has been more volatile than peers.
Further, supporting the 5-star ranking from S&P is the mutual fund's low costs. WOGSX's net expense ratio of 1.25% is below its peers average of 1.39%, and the mutual fund has incurred significantly lower turnover than its large cap growth brethren, 25% versus 113%, which limits its trading costs.
S&P Equity Research has rankings and reports on 789 large cap growth mutual funds that are open to new investors.
If you find appealing the idea of seeking a mutual fund that owns stocks favored by S&P equity analysts, that generated a top-quartile three-year track record, exhibited below average risk, and has low cost factors relative to its peers, then White Oak Select Growth Fund may be worth analyzing further. But had you just looked through the rearview mirror, using the industry standard of past performance for ranking mutual funds, then you would have likely missed it.
Standard & Poor's equity research, mutual fund, exchange-traded fund and bond research can be found on MarketScope® Advisor, Click Here. More information on Standard & Poor's MarketScope Advisor is available by calling 1-877-219-1247. MarketScope Advisor is part of the Standard & Poor's Equity Research Services family of products. MarketScope Advisor provides financial advisors with actionable investment intelligence on multiple asset classes including stocks, ETFs, mutual funds, bonds, variable annuities, and workflow tools that enable advisors to stay connected to the market and their investments.
