Forbes just published its list of 'Honor Roll' funds for 2007, and while there's not a real stinker in the bunch – this is no buy list. Here are the funds that made the cut, along with our MAXrating for each one:
According to Forbes, to get on the Honor Roll "contenders must pass a number of stringent tests. The managers must have been on the job for at least six years; a newbie can't ride on the boffo showing of his predecessor. We also want portfolio diversification. Thus sector funds don't get in. And a fund must be open to new investors." Forbes also looks at how well funds have done through past up and down markets.
But like all top fund lists, this one has its share of problems.
Forbes has been calculating a fund honor roll since the 1970s – way before the boom in investing and funds. While Forbes gets an “A” for effort (using their own rating vernacular…), their honor roll probably won’t beat the market or most other funds going forward.
Forbes, for its part, has one of the more sophisticated “funds to buy now” lists around and considers up and down market performance. Other Johnny-come-lately-financial magazines (Forbes has been around since 1917) do simple performance screens that are far more dangerous to your wealth, even when they adjust for risk. If we had to own a Forbes honor roll fund or a random 5 star fund from Morningstar, we’d go with the Forbes pick. Still, byy considering down and up market performance as their main criteria they are data mining a list of funds that happen to invest in whatever did well in up and down markets in the past. This may or may not (more likely may not) work in the next downturn.
You’ll notice this list is heavily weighted towards value oriented funds, and mostly smaller cap value oriented funds. This is because small cap value stocks have done very well in recent down markets, particularly the 2000-2002 crash that cooked the goose of all the top fund from 2000 (Forbes goes back to 1994 in their up / down market review).
The trouble is, value is not such a value anymore. It is entirely possible – in fact likely – that stocks that don’t even pay dividends may do better in the next downturn than “safe” stocks. Many of the funds on the Forbes list have large stakes in financial stocks. These stocks have done very well in recent downturns- particularly the 2000-2002 market. Today things are different. Financial stocks are at the bottom of the performance charts, and their fat dividends and low valuations don’t seem to be helping much as even the NASDAQ is outperforming financials. Maybe they won’t be such a value once the bad mortgage problem fully flushes through the system.
The reason our MAXratings are not higher for some of these funds is they are in fund categories that have done so well in the past (our rating takes numerous fund quality issues AND fund category into consideration). We punish funds in categories our metrics say are overheated from hot returns and inflows of new money. This is why so many hot tech and growth funds had poor ratings on our site back in 2000.
Also consider that John Bogle, in his book “Bogle On Mutual Funds” did an extensive review of the Forbes Honor roll funds going back to 1974 – he tracked how you would do if you bought them when the list was published, then upgraded to the new list the next year. You would have done better in the Wilshire 5000. You also would have done better in the average stock fund.
Forbes just published its list of 'Honor Roll' funds for 2007, and while there's not a real stinker in the bunch – this is no buy list. Here are the funds that made the cut, along with our MAXrating for each one:
Bruce Fund (BRUFX) MAXrating: 84
Delafield Fund (DEFIX) MAXrating: 63
Keeley Small Cap Value (KSCVX) MAXrating: 68
Mairs & Power Growth Fund (MPGFX) MAXrating: 80
Muhlenkamp Fund (MUHLX) MAXrating: 61
Osterweis Fund (OSTFX) MAXrating: 77
Perritt MicroCap Opportunities (PRCGX) MAXrating: 93
Stratton Small-Cap Value (STSCX) MAXrating: 70
Third Avenue Value (TAVFX) MAXrating: 85
Value Line Emerging Opportunities (VLEOX) MAXrating: 93
According to Forbes, to get on the Honor Roll "contenders must pass a number of stringent tests. The managers must have been on the job for at least six years; a newbie can't ride on the boffo showing of his predecessor. We also want portfolio diversification. Thus sector funds don't get in. And a fund must be open to new investors." Forbes also looks at how well funds have done through past up and down markets.
But like all top fund lists, this one has its share of problems.
Forbes has been calculating a fund honor roll since the 1970s – way before the boom in investing and funds. While Forbes gets an “A” for effort (using their own rating vernacular…), their honor roll probably won’t beat the market or most other funds going forward.
Forbes, for its part, has one of the more sophisticated “funds to buy now” lists around and considers up and down market performance. Other Johnny-come-lately-financial magazines (Forbes has been around since 1917) do simple performance screens that are far more dangerous to your wealth, even when they adjust for risk. If we had to own a Forbes honor roll fund or a random 5 star fund from Morningstar, we’d go with the Forbes pick. Still, byy considering down and up market performance as their main criteria they are data mining a list of funds that happen to invest in whatever did well in up and down markets in the past. This may or may not (more likely may not) work in the next downturn.
You’ll notice this list is heavily weighted towards value oriented funds, and mostly smaller cap value oriented funds. This is because small cap value stocks have done very well in recent down markets, particularly the 2000-2002 crash that cooked the goose of all the top fund from 2000 (Forbes goes back to 1994 in their up / down market review).
The trouble is, value is not such a value anymore. It is entirely possible – in fact likely – that stocks that don’t even pay dividends may do better in the next downturn than “safe” stocks. Many of the funds on the Forbes list have large stakes in financial stocks. These stocks have done very well in recent downturns- particularly the 2000-2002 market. Today things are different. Financial stocks are at the bottom of the performance charts, and their fat dividends and low valuations don’t seem to be helping much as even the NASDAQ is outperforming financials. Maybe they won’t be such a value once the bad mortgage problem fully flushes through the system.
The reason our MAXratings are not higher for some of these funds is they are in fund categories that have done so well in the past (our rating takes numerous fund quality issues AND fund category into consideration). We punish funds in categories our metrics say are overheated from hot returns and inflows of new money. This is why so many hot tech and growth funds had poor ratings on our site back in 2000.
Also consider that John Bogle, in his book “Bogle On Mutual Funds” did an extensive review of the Forbes Honor roll funds going back to 1974 – he tracked how you would do if you bought them when the list was published, then upgraded to the new list the next year. You would have done better in the Wilshire 5000. You also would have done better in the average stock fund.
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