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Grading Information

There is no free lunch!

Each grading element is designed to recognize attributes that are appealing and yet also expose risks that less sophisticated systems would ignore. Maybe a fund is graded highly for risk and return, yet it received that high grade due to one lucky month (that wasn't the norm) or by making a huge gamble that happened to pay off...this time.

Maybe a fund is well diversified, inexpensive, yet takes excessive risks. The FUNDGRA+DES® report card can expose this.

The overall grade by itself is insufficient. It is an equal weighting of all of the grading routines and you need to consider how and why any fund received an overall good or bad grade by looking at the report card.

In terms of information though, it is interesting how much more statistical significance there appears to be using our overall grade versus simple return rankings.

In a study comparing three years trailing return data for funds in the first quarter of 2003 to funds in the first quarter of 2007, you would have had a 54% chance your top performing (top 5%) fund in 2003 was well below average (C- or worse for return) the three years ending in the first quarter of 2007. This was the same percentage of all funds. No statistical significance!

Yet, of the funds that would have made our Honor Roll in 2003 (also only about 5%), over 66% had a return grade of C or better in 2007 (average or above) which is about 50% higher than all funds. Does this mean the grades are predictive? No, it does not. It however appears at though it may be more statistically significant.

There is other interesting statistical information about the relationship of our Honor Roll funds versus future outcomes. For example, in the same comparative 2003 and 2007 periods, classification of a fund as Honor Roll in 2003 cut the risk of the fund having terrible (F) grade returns in 2007 nearly in half.

More research is being done by our team, and we will continuously improve our methods. In the meantime, take the time to learn whether your funds make the grade.