Who And What Does FundPolice Track? While there are over 10,000 mutual funds and over 440 fund families (consisting of one or more funds), FundPolice primarily tracks fund and investment companies that have gotten into some kind of hot water with regulators and investors. If a fund family is not listed on our website this strongly infers that the company in question has not been in any type of publicized trouble, but this does not guarantee it.
We scour the newswires daily for the latest updates on current and new issues that impact investors and we thus may occasionally miss a few, but we think we do as good or better than any other resource in bringing you a one-stop, comprehensive database of what is going on out there.
What Is The Practical Significance Of The FundPolice Opinion And Rating Given To Each Fund Family Or Financial Institution? All listed companies are given an immediate opinion and rating. We do our best, based upon changing news on each company to review our opinion on a regular basis and make a change in either the opinion or rating, if we feel this is warranted. The ratings are as follows:
Red Light = Steer Clear (Sell)
Yellow Light = Caution (Hold but keep a watch on)
Green Light = FundPolice "Clean Funds Seal of Approval"
In general, most listed fund companies are rated Red Light, thus are strong candidates for sale, but not necessarily an automatic sale. This is a very important point! In addition to the FundPolice opinion and rating, you should consider other information about your fund before making a "sell" decision, such as: taxes, fees, performance over both long and short periods, manager tenure, asset growth or redemptions, turnover, board member ownership of shares, etc. This type of information can be obtained from sources such as Morningstar, Lipper and reading the prospectus.
Why Are Most Of The Ratings Of A Red Or Yellow Light Nature, With Very Few Greens? To make it into our database most of the companies have done something that has upset either regulators and has led to some level of official investigation and eventual penalties. For this reason, the majority of our ratings will be negative in nature initially (red light) and may improve over time if the company in question has made significant strides on both a quantitative and qualitative basis.
How Concerned Should I Be If I Find That One Or More Of My Fund Or Investment Companies Has Been In Trouble? There is seldom a "fire" that requires that investors need to take action immediately, all though this does happen in remote cases, such as Heartland a few years back. Usually, if a fund company has made it into the FundPolice database, there will be data from other sources (such as ratings from Morningstar, Lipper, Fund Alarm, etc.) that adds to the potential eventual conclusion that it is time to move on.
If I Reach The Conclusion That It Is Time To Sell My Funds, What Other Alternatives Do I Have? This decision to sell your investment and move onto to something else should be made only after you have thoroughly analyzed and actually found something better. In our opinion, something better is not simply finding a new fund that has recently gotten allot of publicity (we call this chasing performance). Instead, new competing alternatives to mutual funds should be considered, such as Exchange Traded Funds (ETFs) and Folios.
Some excellent sites to review include:
www.wadefolios.com Stock Folio and ETF investing made simple and affordable for investors of all sizes www.exchangetradedfunds.com Educational site on ETFs www.spdrindex.com Product site for Select Sector SPDRs. Suitable for self-directed investors www.ishares.com Product site for iShares from Barclays. Suitable for self-directed investors
Are All Mutual Funds Essentially Guilty? No. Even with the structural issues and numerous hidden fees, there are some outstanding mutual fund options available. Unfortunately, many of the best are hard to find because they don't do the usual "we are the champion" advertising done by most fund companies. A select few companies may earn the FundPolice "Clean Funds Seal of Approval". Since we do not spend the majority of our time looking for good funds, this list will be shorter than we wish initially, but will build over time.
What Is The Minimum Criteria A Fund Must Meet To Be Considered For "Clean Funds Seal Of Approval"?
The manager has been managing the fund ten years, or the fund is part of an established fund company that has a proven team method that extends back at least ten years, or the manager has at least a ten year track record managing the same style between the current fund and a prior fund he or she managed.
Manager(s) are personally invested substantially in the fund
Willing to close the fund if it gets too big
No or low 12b-1 expenses (less than 0.25%)
Depth of management team and research process
Method used to manage fund-dedication to one style
Good risk adjusted performance in both up and down markets
Fund has not gotten to large in size
ALL members of the fund's board of directors own shares of the fund. If the board members are not confident enough in the fund to own fund shares, then why should you? Let's face it- the typical fund board member is a millionaire who can easily plop down some cash into the fund. The fact that most don't is a clear sign they are not interested in the fund and believe their money is better invested somewhere else.
If ALL members of the fund's board of directors own shares of the fund, do they own a significant number of shares, or is it simply window dressing? If the board members don't own a significant number of shares, then why should you?
