One on One with Jersey Gilbert, Financial Products Analyst at "Consumer Reports"
Tuesday, January 09, 2007
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SUSIE GHARIB: If you're thinking about investing in mutual funds or making changes in your portfolio, you'll want to listen to the advice of our guest tonight. The February issue of "Consumer Reports" has just ranked the 60 most consistently successful mutual funds in six categories. Joining us now with more information, Jersey Gilbert, financial products analyst at "Consumer Reports." Hi, Jersey.
JERSEY GILBERT, FINANCIAL PRODUCTS ANALYST, CONSUMER REPORTS: Good evening, Susie.
GHARIB: There are so many lists with rankings of mutual funds. What makes your list different than all the others?
GILBERT: What we've tried to do is take the focus away from how much a fund is beating the market to how often it beats the market because we think that's really where small investors have their greatest concerns. As you know, in the last 10 years, anybody who has invested in a volatile fund or any kind of volatile investment -- and this market has been very volatile - has had a very difficult time holding on to that investment, trying to get the timing right, finding maybe that they paid too much for the investment, not being able to hold on to it when it's down and when experts say you should be actually buying more of it. So what we wanted to do was shift the focus not to over performance but consistency of performance.
GHARIB: Let's get some specifics because you have listed 60 mutual funds in several categories. We've singled out the highest scorers in three categories. So if an investor put money in, for example, Gabelli Equity which is the highest scorer in the large cap fund or Marshal Mid-Cap and Royce Total Return, how well can he or she expect to do?
GILBERT: Well, like anything in investing, it's a little bit about playing the odds. When we did this study two years ago, we discovered that about two-thirds of the funds that had passed out tests two years ago were able to beat the market this time. So that's at a time when only about half the mutual funds were beating the market. So you're getting a little bit of an edge by going with the consistent fund. And we think that the academic research, some of the research done by some of the data outfits like Morningstar would back us up on this.
GHARIB: So like if you look at the large cap category, you've listed about 22 successfully consistent funds.
GILBERT: Right.
GHARIB: Is the company at the top of the list just as good as the one at the bottom of that list?
GILBERT: There's not a lot of predictability. I would rather say, if you've got a fund that is scoring above 70 on our rating, you've got a pretty good chance that that fund will continue to be a consistent fund. When we went back and looked at the funds from last year, we found that almost 90 percent of them, two-thirds, were beating the market but almost 90 percent of them were still in the top scoring of consistency for their particular sector.
GHARIB: Now I understand that your ratings aren't based only on running the numbers and running statistics. You've eliminated some funds from your list because the fund manager left. So tell us a little bit more about your thinking there.
GILBERT: Yeah, one of the surprising things we found as we were looking over these numbers was that funds that maintain the same manager over the 10 years that we were looking at the funds tended to do better and by a fairly wide margin. We're talking about one percentage point, 1.5 percentage points than the funds which switched managers during that 10- year period. So we feel that manager tenure is kind of an important thing to look at and when you're deciding to choose a fund, you should see how much experience that fund manager has in that position and make that part of your investment consideration.
GHARIB: All right, a lot of good thoughts and advice. Interesting list. Thank you very much, Jersey.
GILBERT: You're welcome.
GHARIB: We've been speaking with Jersey Gilbert of "Consumer Reports."
