The Judging Fund Managers Model is the site’s third online tool enabling investors and advisers to rank mutual funds, according to a press release.
The model is based on an academic paper that finds fund managers who use similar techniques are likely to make similar investment decisions and deliver similar performance in the future, the release said. The risk-adjusted returns of top decile funds in this model outperform the bottom decile by at least 5.9%. By utilizing MUTUALdecision’s online tool, investors and professional advisers can rate mutual funds based on this predictive academic model.
“On the heels of 2008’s market performance—where no mutual fund category was spared from significant, across the board percentage declines—traditional methods for evaluating top funds based on past performance become less reliable,” said George Comer, chief academic officer at MUTUALdecision and associate professor of finance at Georgetown University, in the release. “The Judging Fund Managers Model is unique in that it evaluates each fund manager’s skill by the extent to which his or her investment decisions resemble those of other managers with distinguished past performance records, arming investors with predictive information about future fund returns.”
The academic paper “Judging Fund Managers by the Company they Keep,” published in the Journal of Finance and authored by Randolph Cohen (Harvard Business School), Joshua Coval (Harvard Business School), and Lubos Pastor (University of Chicago), introduced two new performance evaluation measures to judge a fund manager’s skill compared to top performing funds: the extent to which a manager’s portfolio holdings overlap with holdings of other managers and the overlap of changes to portfolio holdings, according to the release.
The company said it launched the Return Gap Model and the Active Share Model in November. The Return Gap Model analyzes the difference between a fund’s actual return and the return it would have earned by following a buy and hold strategy. The Active Share Model measures the extent to which a mutual fund’s portfolio holdings differ from the portfolio’s benchmark index.
All academic models are available for free during a two-week trial for those who sign up, after which site visitors can access all hosted academic models and site tools through a monthly ($9.95), quarterly ($23.85), or annual ($71.40) subscription. More information is available at www.MUTUALdecision.com.