Fund Authority Scores rate mutual funds and ETFs on the most important economic factors influencing long term diversified investment fund performance
The Skilled Investor developed the Fund Authority Score system to provide individual investors with concise and objective mutual fund and ETF comparisons within investment asset classes.
Fund Authority Scores measure investment fund cost, maturity, efficiency, and performance factors. Fund Authority Scores use only those objective measures that have been demonstrated in the financial research literature to be correlated with improved investment results over long time horizons, when using a buy-and-hold personal investment strategy. You can find a directory of Fund Authority Scores for mutual funds and ETFs here.
Using a “worst to best” integer scale ranging from minus 10 to plus 10, Fund Authority Scores weigh most heavily the investment expenses and costs that investors pay repeatedly. Additional scoring weight is given to historical performance, investment fund maturity, and fund operating efficiency. (See this article for an explanation of how Fund Authority Scores are determined: The Mechanics of the Fund Authority Score System for ETFs and Mutual Funds)
Within each investment asset class, no-load mutual funds and ETFs with very low direct and indirect costs are much more likely to receive high Fund Authority Scores and to sustain those scores over the long-term. Expensive funds tend to receive lower Fund Authority Scores, even though they might have demonstrated above average performance recently.
Superior past performance has NOT been demonstrated to be a consistent predictor of better mutual fund and ETF performance in the future.
The most reliable predictors of future investment fund performance are direct investment expenses and hidden transactions costs. If you do not first extract the influence of direct and hidden investment costs, when selecting mutual funds and ETFs, you are far more likely to reach spurious conclusions and to make poor investment fund choices.
Similarly, it is a waste of your valuable time to track the individual records of portfolio fund management personnel. Most professional diversified investment fund managers are well educated, intelligent, experienced, and highly motivated by substantial compensation. Securities market competition tends to make the vast majority of these “above average” persons just average in the long term from a gross investment performance standpoint. What is left in the historical performance record tends to be just luck rather than skill – particularly when risk-adjusted returns are measured AFTER investment costs and taxes. (See these [...]