|
 |
|
Mutual Funds
Hints to Evaluating Funds |
Using Mutual Fund Data
Beta: Lower is better. Like all mutual fund data, the beta, determiner of
risk, should be evaluated relative to the fund’s category. Investors should examine
the fund’s R-squared to ensure the beta number is accurate. R-squared is a number
from 1 to 100 (scores nearing 100 are good) that tells how well the beta quantifies a
fund’s risk. Investors should also keep in mind that beta represents a fund’s
market risk which is just one of the many types of risks associated with mutual funds or
other investments. Be careful not to underestimate a fund’s total risk by relying
only on its beta.
Expense Ratio: Lower is better. Expense ratios include management costs,
12b-1 fees, and other operating costs. They do not include sales fees or commissions.
Investors should evaluate expense ratios relative to their categories because some are
higher than others. Fund categories on the high-end include specialty, international, and
small-cap funds, whereas the low-end include index matching and bond funds. Check
Findafund’s average expense ratio
chart for the category averages.
Net Assets: Overall, bigger is better, but it depends on the category.
Economies of scale favor funds with larger net assets because they can diversify better
and can afford better managers and research analysts. In addition, expense ratios are
normally lower for larger funds. Fixed-income funds, in particular, benefit from large net
assets because they can negotiate bigger and better deals. However, in the small-cap
equity arena, sluggish buying and selling, resulting from large net assets, can often cut
deeply into a fund’s returns.
Total Return: Bigger is
better. Findafund displays category averages and benchmark returns next to all individual
fund returns. Coming soon, Findafund will compare standardized returns (returns with loads
and fees included) to help investors determine which fund is best suited to their
investment goals.
MORE » |
