Money Market Funds ?

dunstonh

chiang_mai said:

dunstonh said:

b the Vanguard MMF has a FE fund info rating of two crowns, the other 6 products all have 4 or 5 is that significant?

It shouldn't form any part of your research.  Completely ignore them.

What is your basis for instructing others to ignore a propietary risk assessement system? I personally find many such systems helpful to compare and contrast/confirm findings and to identify anomalies that require further research. The Fundinfo platform is one of the largest around: "fundinfo offers the largest fund information and document library in Europe & Asia, hosting over 95 million fund documents and covering data on over 410,000 share classes". https://www.fefundinfo.com/products/institutions/fundinfoco

The top 10% of funds based on three factors (alpha, relative volatility and consistent performance over the past three years) are awarded five FE fundinfo crowns. The next 15% receive four crowns, and each of the remaining three quartiles is given three, two and one crowns, respectively.

It's looking at past performance.   That is not how you judge the quality of a fund.  Quantitative ratings tell what happened, but it doesn't tell you why it happened.   

In July, 18 funds with a 5 star rating were changed to 1 star.  Not very nice for those that relied on the 5 star rating just days or months earlier.

Many managed funds rely on cycles.  They know they will be good in one period but not the next.   So, going into a fund that has thrived in a cycle it suited often means it will do poorly in the next cycle when its style is no longer in fashion.   So, they will have their period of outperformance, gain those 5 stars just in time for it to go off the boil.

Vanguard did a study just over a decade ago. It found that Mornginstar one-star funds went on to have the greatest excess returns over their benchmark.  That was followed by 2 stars, with 3 and 5 tied for 3rd place, and 4 stars last.

It also found that only 47% of 5 star funds retained its rating for at least 12 months.

Managed funds can be very appealing when you see some of their outperformance.   However, long term investors soon realise that outperformance doesn't last and that the fund that was so good once upon a time just goes off the boil and often reverts to mean until the cycle next favours it.

eg: Here the fund had 5 stars at its peak, and look what happened next.  It lost those stars after that, but the cycle is starting to favour it again, and it's going back up and it's starting to put the stars back on again as that big drop has dropped off the ratings measurements.

chiang_mai

Albermarle said:

These crowns are not indicative of the risk AFAIK. They are a kind of rating system ( like the number of stars a hotel gets on tripadvisor) 

From the link provided above: "The Crown Fund Rating is a quantitative rating that is based on a fund’s historical performance relative to an appropriate benchmark.

Relying on three key measurements - alpha, volatility and consistent performance, the ratings are designed to help investors distinguish funds that have superior performance in terms of stock picking, consistency and risk control. It is rebalanced twice yearly in January and July".

But as already said, also above, I read the statement as to ignore the FE Fund rating system in any research, which is why I queried it. 

chiang_mai

dunstonh said:

The top 10% of funds based on three factors (alpha, relative volatility and consistent performance over the past three years) are awarded five FE fundinfo crowns. The next 15% receive four crowns, and each of the remaining three quartiles is given three, two and one crowns, respectively.

It's looking at past performance.   That is not how you judge the quality of a fund.  Quantitative ratings tell what happened, but it doesn't tell you why it happened.   

In July, 18 funds with a 5 star rating were changed to 1 star.  Not very nice for those that relied on the 5 star rating just days or months earlier.

Many managed funds rely on cycles.  They know they will be good in one period but not the next.   So, going into a fund that has thrived in a cycle it suited often means it will do poorly in the next cycle when its style is no longer in fashion.   So, they will have their period of outperformance, gain those 5 stars just in time for it to go off the boil.

Vanguard did a study just over a decade ago. It found that one Mornginstar one-star funds had the greatest excess returns over their benchmark.  That was followed by 2 stars, with 3 and 5 tied for 3rd place, and 4 stars last.

It also found that only 47% of 5 star funds retained its rating for at least 12 months.

Managed funds can be very appealing when you see some of their outperformance.   However, long term investors soon realise that outperformance doesn't last and that the fund that was so good once upon a time just goes off the boil and often reverts to mean until the cycle next favours it.

eg: Here the fund had 5 stars at its peak, and look what happened next.  It lost those stars after that, but the cycle is starting to favour it again, and it's going back up and it's starting to put the stars back on again as that big drop has dropped off the ratings measurements.

I don't know off any fund rating methodology that provides chapter and verse on every aspect of a fund, all such systems either look backwards or at the current view and then grades them accordingly. In the asbence of a crystal ball predicting future peroformance, that's all that is available. Morningstar ratings do similar, as does LIPPER, there's only so much data available for them to work with. I like to check the ratings of all the ones I've mentioned, when I'm assessing funds. It's not unusual to see that two different rating agencies that don't align and it can be challenging, and useful, to try and understand why. That's when it's helpful to understand other things such as the contents of style boxes, capitalisation ratio's, sectors occupancy, upside/downside captures and past earnings figures etc but as a first cut/first look, Fund Info data is not that different from any of the other agency rating systems. One of the aspects in it's favour is the ability to compare ratings across similar funds, which arguably requires a large database of detailed funds data to accomplish. I'm not a big champion of FE Fundinfo or their rating system but neither am I in favour of disregrding entirely what they have to say, which is the way I interpreted what you wrote.     

dunstonh

I don't know off any fund rating methodology that provides chapter and verse on every aspect of a fund, all such systems either look backwards or at the current view and then grades them accordingly. In the asbence of a crystal ball predicting future peroformance, that's all that is available.

There are a number of fund research companies that provide more data.  FE themselves do that and provide more data.  This includes liquidity of a fund, investing style etc.    However, these come at cost and won't be found easily free-of-charge.   

I'm not a big champion of FE Fundinfo or their rating system but neither am I in favour of disregrding entirely what they have to say, which is the way I interpreted what you wrote.     

I guess it depends on how much weight you give to past performance without knowing the context.      
I put no weight on data without knowing why.  Did it get lucky by being in the right place at the right time?   Was it a strategic decision?     star ratings don't tell you that.

chiang_mai

dunstonh said:

I don't know off any fund rating methodology that provides chapter and verse on every aspect of a fund, all such systems either look backwards or at the current view and then grades them accordingly. In the asbence of a crystal ball predicting future peroformance, that's all that is available.

There are a number of fund research companies that provide more data.  FE themselves do that and provide more data.  This includes liquidity of a fund, investing style etc.    However, these come at cost and won't be found easily free-of-charge.   

I'm not a big champion of FE Fundinfo or their rating system but neither am I in favour of disregrding entirely what they have to say, which is the way I interpreted what you wrote.     

I guess it depends on how much weight you give to past performance without knowing the context.      
I put no weight on data without knowing why.  Did it get lucky by being in the right place at the right time?   Was it a strategic decision?     star ratings don't tell you that.

I personally put a fair amount of faith on past performance, standard deviation, volatility, alpha and beta histories are all useful to understand when selecting a fund. Of course it doesn't stop there and the degree to which a retail investor will dig deeper, will depend on a range of factors, not least of which is their willingness to spend money for more detailed information. This topic has made me think that I might just set out the process that I go through when selecting a fund, and let others pick it apart and critique the approach, it could be a useful learning experience for many people.

Bostonerimus1

chiang_mai said:

dunstonh said:

I don't know off any fund rating methodology that provides chapter and verse on every aspect of a fund, all such systems either look backwards or at the current view and then grades them accordingly. In the asbence of a crystal ball predicting future peroformance, that's all that is available.

There are a number of fund research companies that provide more data.  FE themselves do that and provide more data.  This includes liquidity of a fund, investing style etc.    However, these come at cost and won't be found easily free-of-charge.   

I'm not a big champion of FE Fundinfo or their rating system but neither am I in favour of disregrding entirely what they have to say, which is the way I interpreted what you wrote.     

I guess it depends on how much weight you give to past performance without knowing the context.      
I put no weight on data without knowing why.  Did it get lucky by being in the right place at the right time?   Was it a strategic decision?     star ratings don't tell you that.

I personally put a fair amount of faith on past performance, standard deviation, volatility, alpha and beta histories are all useful to understand when selecting a fund. Of course it doesn't stop there and the degree to which a retail investor will dig deeper, will depend on a range of factors, not least of which is their willingness to spend money for more detailed information. This topic has made me think that I might just set out the process that I go through when selecting a fund, and let others pick it apart and critique the approach, it could be a useful learning experience for many people.

Life's too short for that thread. But I imagine you'll get some eyeballs for the numerology.

ShinyStarlight1

chiang_mai said:

dunstonh said:

I don't know off any fund rating methodology that provides chapter and verse on every aspect of a fund, all such systems either look backwards or at the current view and then grades them accordingly. In the asbence of a crystal ball predicting future peroformance, that's all that is available.

There are a number of fund research companies that provide more data.  FE themselves do that and provide more data.  This includes liquidity of a fund, investing style etc.    However, these come at cost and won't be found easily free-of-charge.   

I'm not a big champion of FE Fundinfo or their rating system but neither am I in favour of disregrding entirely what they have to say, which is the way I interpreted what you wrote.     

I guess it depends on how much weight you give to past performance without knowing the context.      
I put no weight on data without knowing why.  Did it get lucky by being in the right place at the right time?   Was it a strategic decision?     star ratings don't tell you that.

I personally put a fair amount of faith on past performance, standard deviation, volatility, alpha and beta histories are all useful to understand when selecting a fund. Of course it doesn't stop there and the degree to which a retail investor will dig deeper, will depend on a range of factors, not least of which is their willingness to spend money for more detailed information. This topic has made me think that I might just set out the process that I go through when selecting a fund, and let others pick it apart and critique the approach, it could be a useful learning experience for many people.

I’d be very interested to see that.

SloughSally

I understand that gains in STMMFs are eligible for CGT , but since in reality it’s interest does the gain and CGT get reported early on a self assessment or only after I sell in the future, I hold them currently in a S&S ISA which I know will avoid the CGT , but considering adding some to my GIA .
Thank You.

GeoffTF

CGT is reported after you sell. Capital gains are not income. You also have to pay income tax on the reinvested income in both distributing and accumulating funds as it arises.

cloud_dog

SloughSally said:

I understand that gains in STMMFs are eligible for CGT , but since in reality it’s interest does the gain and CGT get reported early on a self assessment or only after I sell in the future, I hold them currently in a S&S ISA which I know will avoid the CGT , but considering adding some to my GIA .
Thank You.

Most STMMF are likely to come under the income tax regime, although it is very dependant on how the fund is structured, e.g. made up predominantly of bonds means income tax liability.