Is this label a fable?

Certain investment principles, and tools, are good for life. Nearly 20 years ago, exactly in the Premiere issue of the MoneySense magazine of June 1999, Suzane Abboud, FundScope founder, wrote an article entitled "Is this lable a fable?" In it, she stated, among other things, that the most misleading thing about a mutual fund may be its name.

Among the misleading labels that Suzane cited were the value/growth monikers. "All too often", she said, "funds market themselves as champions of one investment strategy but really follow another strategy entirely". Thus a value fund, which is supposed to specialize in buying downtrodden stocks that trade at relatively cheap valuations, could very possibly be chasing quick gains by investing in high flying, momentum driven equities. Obviously, the opposite can also happen, depending on what investment style is in vogue.

How do you know if your fund manager is doing what his or her mandate states? Don't rely on the fund's stated objective or prospectus, for sure. Such documents are written in very broad terms such that the fund manager reserves himself, or herself, the freedom to invest in whatever they see fit, depending on circumstances. Some might say: nerverrmind, we are supposed to rely on the fund manager to manage the portfolio. But that is not enough. If you invest in a value fund, value you should expect, not growth, and vice versa.

This time, we feature one of the most powerful, and most exclusive tools of the FundSScope website, namely the "Style Analyzer". We are not aware of any other service that provides such function. What the Style Analyzer does is, it calculates the correlation of your fund with several style indices, including growth, value, large cap and small cap indices, based on monthly historical results. If a fund has a high correlation with a value index, say above 60%, then your fund has definetely a value penchant. However, if a fund labels itsels as a value fund, yet depicts a higher correlation with the growth index, that means the fund manager is not strictly following his or her mandate. This is particularly important to determine because it is largely expected that value funds will out-perform growth funds in the intermediate term.

To run the FundScope Style Analyzer for your fund, please follow the easy steps outlined herebelow:

1. Click on the Fund Info Tab in the horizontal menu above

2. Select "Snapshots" and, from there, type a fund's name or few letters or words included in your fund's name.

3. Select the fund you have chosen. This will take you to the Fund Overview page, which will depict some general informartion about the fund. On that page, you will see a horizontal menu with the following tabs:

  • Overview
  • Performance
  • Risk
  • Value-added
  • Asset Trends
  • Style Analyzer
  • Asset allocation
  • Geographic allocation
  • FundScope analysis

5. Press on Style Analyzer and see how your fund correlates with each style index. We also encourage you to view the other pages, which contain a wealth of information about your fund. Most of it is free, albeit you need to register for our Free Membership if you haven't already done so.

January 4, 2019

Important disclaimer: this article and other articles or content of this website reflect the views of FundScope Limited and /or its contributors and should not be construed as investment advice or recommendations to make specific investment decisions. Neither FundScope nor any of its content contributors will take responsibility for any errors, omissions or misrepresentations, or any responsibility for investment decisions or losses made as a result of reading this artile or using our website. We shall not be liable for any damages, direct or consequential, arising from the use of this website or or any of its content. Investors are strongly advised to conduct their own proper due diligence and use the services of investment advisors before making any investment decisions.