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Fund Spy

Making Fund Screeners Fantastic

I put a variety of fund screeners to the test.

The article was published in the November 2017 issue of Morningstar FundInvestor. Download a complimentary copy of Morningstar FundInvestor by visiting the website.

In the wake of "The Fantastic 43” article in September, readers wrote to ask if there was a way to replicate the screen in the Premium Fund Screener tool on Morningstar.com. Unfortunately, the Manager Investment of More Than $1 Million in the Fund and Returns Above the Fund’s Benchmark Over the Manager’s Tenure screens that were crucial to my tests are not available in this tool, which was built many years ago.

In fact, I don’t know if it is available in any screening tool for investors. They are both available in the Fund Spy tool at mfi.morningstar.com, but that only tells you about one fund at a time, so it isn’t a screener.

So, I set out to make the next best thing for Morning­star.com’s Premium Screener and some other screening tools found on the web. They aren’t perfect replicas, but they do allow customization of your search. Because this is a screening tool, I’m assuming you are looking for new ideas, so I added a screen to exclude funds that are closed to new investors.

Let’s take a look at what I came up with.

Premium Fund Screener Morningstar.com

  • Fees & Expenses, Expense Ratio < Category Average. Yes, this is a significantly lower standard than my top-quintile test for “The Fantastic 43” article, but that’s all that’s available. The screen still points investors in the right direction, toward funds with lower expenses and a better chance of beating peers.  
  • General, Morningstar Analyst Rating > Bronze. If I can’t screen on manager investment levels, then I’m raising the Morningstar Analyst Rating bar one notch from Bronze to at least Silver.
  • General, Distinct Portfolio Only = Yes. This gives you just one share class per fund and makes the resulting list much more manageable.
  • Management and Purchase Data, Closed to New Investment = No
  • Performance, 10 Yr Return +/- Category > = 2. I can’t screen for performance over manager tenure that is greater than the benchmark, so I settled for 10-year performance that crushes the category’s. That “2” means 200 basis points, or 2 percentage points. The high bar limits the outcome to a small list, but you could cut it to 1 and get about 5 times as many names. Not many bond funds can pass this test, however, and those that do may have a more intrepid risk profile. If you are just searching for one cate­gory of bond funds, then I’d suggest setting this to 1.
  • Ratings, Morningstar Risk not = High. This is the same as in the original test, and it is pretty important since I’ve raised the hurdle on outperformance, but we don’t want extreme risks.
  • Management and Purchase Data, Management, Fund Manager Tenure > = 5. “The Fantastic 43” test has a de facto screen of five years because the manager has to have outperformed for five years. We’ll add it here—because that 10-year record we screen on above doesn’t have much meaning if the manager started there last year. My screen produced a small list of 28 funds. Because my fee test was a little weak, I suggest ranking the list by expense ratio in order to surface the cheapest ideas.

Etrade
Search for “mutual funds,” choose the Fund Screener, then select Advanced Screener. The below test leaves a fair amount of funds if you don’t select a Fund Category at the top, so select a Fund Group of Domestic Equity, Taxable Bond, or whatever you are looking for. Next, set it to screen for 3-star funds or better. Then, check the box to exclude funds that are closed to new investors. This tool lets you screen on Manager Tenure. “The Fantastic 43” test has a de facto screen of five years because the manager has to have outperformed for five years. Here, select 5–10 Years and >10 Years. The Performance screen is relative to category, and it lets you choose the time period. I select Non-Load Adjusted Return (not a big difference with load-adjusted returns in practice, so either is fine) of 10 Years and the two top quintiles of performance.

You can screen on Expense Ratios but only in absolute terms. So, screen for < 0.5% and 0.5%–1%. You may want to set it for No Load No Transaction Fee in the Fees section. Next, the Risk screen lets you throw out the highest risk quintile by including the top four quin­tiles under standard deviation. When I ran this screen using domestic equity, 103 funds were matches.

You may also want to use the option of limiting it to active or index funds in order to make the list even smaller. If you choose Index under Fund Characteris­tics, then you should skip the Manager Tenure screen. Adding Actively Managed got me to 83. Why do index funds make the grade here when they don’t make the grade in “The Fantastic 43”? I require that a fund outperform its benchmark over the manager’s tenure, and virtually no index funds do that. However, Etrade doesn’t have an outperformance versus benchmark test, so you get index funds. That’s fine, too, as it means it works for active and passive.

There are a lot of cool additional screens you can do like Portfolio Turnover, Bond Duration, P/E Ratio, Portfolio Concentration, and Total Net Assets. All are useful, especially when you have a more targeted list and are trying to understand each individual fund. But I’ll skip them because they are not crucial to fund performance. You could certainly use them to further whittle the field. There are some screens I’d advise you not to use, such as yield (both SEC 30 Day Yield and Distribution Yield) or technical factors, because they lead you away from fundamental investing.

Fidelity
Select the Mutual Funds tab, then Get Started. Click Mutual Fund Evaluator. The good news is you can select fees from Low to High. The bad news is the screener doesn’t do much else. I selected low under Expenses, above average under Returns, and an Overall Rating of 3 stars or better. There’s an option to select by Risk, but, rather than screening out funds with risk levels above a certain level, it only allows you to select one level. Thus, I didn’t use it. My three-criteria screen whittled down the universe to 87 funds.

Schwab
Choose Investment Products in the Invest dropdown menu. Select Mutual Funds and then click on Find a Fund. This tool lets you screen on Morningstar Rating and Gross Expense Ratio, so I selected 3 stars or better and the lowest 10% of the market, respectively. I also selected No-load funds at Schwab under Fees/Loads and Open to New Investors. This got me down to a rather unwieldy 573 matches, so I’d suggest you supplement this screen with at least one of the other tools listed here.

T. Rowe Price
Select Mutual Fund Research Tool in the Mutual Funds dropdown menu. Unfortunately, this is limited to T. Rowe Price funds. You can screen for funds with star ratings of 3 or better under Ranking and Open to New Investors under Fund Attributes. This only cut my field to 175 funds in the Investor share class. You’ll probably want to throw in a Category screen, too, to get down to a smaller number. Selecting Domestic Stock Funds got me down to 46 funds. You can rank by net expense ratio, though, so you at least start with the cheapest funds. Some of the data points available—like net asset value—are essentially meaningless to investors, and I suggest you skip that one.

Vanguard
Select Advice & Guidance, then Calculators & Tools. Click on "Create a list of mutual funds & ETFs from criteria you select" (catchy name for its screening tool). Vanguard lets you screen on Expense Ratio in absolute terms, so select Less than 1%. It comes with Vanguard preloaded in the Fund Family screen, which limits you to only Vanguard funds. If you choose to get around that, you can either add up to four more fund companies or just make the section blank. However, if you don’t screen on fund type or fund families, you will end up with too many funds at the end of this screen. I suggest doing one of these.

Then, select Additional Criteria at the bottom. Select No-transaction fee funds under Fees and Minimums, then choose Manager Tenure of Greater than five years. I’m not a fan of its Performance and Risk Attributes screen because they use absolute figures rather than relative so we’ll skip those. Looking for only domestic-stock funds with no fund company screen cuts my results to 139. That’s still pretty high. I went with a Fund Category screen such as Large Value, which took me down to 32 funds. On the results page, it displays Vanguard funds first but includes the others in its platform. You can’t screen out funds that are closed to new investors, but at least Vanguard’s results page indicates what funds are closed.