A few good screens can whittle the whole fund universe to fewer than 50 funds.
This article was originally published in the June 2017 issue of Morningstar FundInvestor. The screen has since been updated using data through July 31, 2017, so the lists are close but not perfect matches. Download a complimentary copy of FundInvestor here.
It's time once more for my annual screen for fantastic funds. With just a few key screens, I pare the universe of more than 8,000 mutual funds to just 43. (We had 48 last year.)
The final number changes a bit each year depending on how many funds pass all the tests. With so many funds, you can be very choosy. It's a purely quantitative screen--I don't make exceptions just because I like a fund.
Here are the screens:
Cheapest quintile of category. Morningstar studies show that funds in the cheapest quintile of their Morningstar Category are a much better bet than higher-cost funds, so this is the first test.
Manager investment of more than $1 million in the fund. We found that funds where at least one manager has invested more than $1 million of his or her own money are more likely to outperform than those without such alignment of interest.
Morningstar Risk rating below the High level. Our Morningstar Investor Return studies have found that highly volatile funds are harder for investors to hold, and investor returns tend to trail total returns by a greater margin in those funds.
Morningstar Analyst Rating of Bronze or higher. This fundamental, forward-looking rating factors in qualitative and quantitative measures.