Successful Prediction Of Winning Funds/ETFs

Tom Madell profile picture
Tom Madell
1.53K Followers

Summary

  • While no one can reliably predict how any given mutual fund/ETF can do a year or more in advance, I have a long record of long-term success at recommending winners.
  • As a further test of that, I looked at the performance of my long-standing 20 fund recommendations as well as 60 newer recommendations.
  • Both groups beat both the category averages of similar funds confirming these funds' usefulness for fund and ETF investors.
Mutual funds, investment asset selection by performance concept, cube wooden block with alphabet combine the word abbreviation FUNDs on black chalkboard background
Nuthawut Somsuk/iStock via Getty Images

A little more than a year ago, my website featured a total of 80 mutual funds and ETFs from diverse fund categories I felt were good choices for investors. These included 20 of my long-standing recommended stock and bond funds as well as 60 newly selected additional funds. The first group consisted of funds I personally own that have given me good results down through the years. The second group were funds I screened out from thousands of others which seemed to have the kind of characteristics, as described in many of my previous Newsletters, that might make them winners in the future.

While my original group generally had low expense ratios and most were Vanguard funds along with a good share of index funds, the new group often had higher expense ratios and were often managed funds from diverse fund companies.

It should be recognized that no one can reliably predict fund performance in advance. So any list of fund recommendations, short or long, may as time passes, turn out to have a predominance of either winners, losers, or be somewhere in between. So perhaps this newly picked group had as good a chance of doing well as my own long-standing picks in spite of going against the usual expectation that higher expense ratios along with many managed, non-index funds are generally not likely to be one's best choices.

So how did these two fund groups do, first against the average funds in their specific fund category, and secondly, when comparing the performance of the 60 newly recommended funds against my 20 own more time-tested funds over the last 13 months? (I chose 13 months as the period under investigation simply because I first selected the group of 60 funds at the start of June 2020 with data now available through the end of June 2021.)

Results

Here are data summarizing the results:

Of my 20 long-standing recommended funds, 12 beat the category average for similar funds, or 60%. Of my 60 newly recommended funds, 33 beat their category average for similar funds, or 55%. (Note: Data for these analyses were derived from the portfoliovisualizer.com website.)

This would confirm the usefulness of my long-standing recommended funds for investors who want to select a diversified portfolio of funds that return better than the average fund within their comparison categories.

My 60 newly recommended funds also fared reasonably well against their most relevant competition, also confirming their usefulness for investors.

So, while both groups of my recommendations beat their category averages, my long-standing recommended funds were superior at outperforming their category competition. One can conclude that both groups contained funds that were a better choice than the average fund when selecting funds from given categories.

But we can now also compare the average total returns for the new group of 60 funds versus my original, long-standing group. In these comparisons, separating out the 39 new stock funds and 21 new bond funds, it turned out these newly recommended stock and bond funds both had somewhat higher average returns than the average return of my long-standing recommended 13 stock and 7 bond funds. For stock funds, the average non-annualized 13-month return for the new group was 43.40% versus 42.50% for the long-standing recommendations. For bond funds, the difference was more striking: 5.77% (new) vs. 3.33% (old). These results were quite surprising given the composition of the two groups. The results were especially surprising for bond funds.

For stocks, over the last 13 months, stock index funds, such as those in my original recommendation group, tended to underperform the average US stock fund. Although I don't have data confirming this for the 13-month period examined, during the 12 month period between July 2020 and June 2021, the average US stock fund outperformed the index-derived total US stock market 48.4 vs. 44.3%, according to the Wall Street Journal. This probably accounts for why my original group of stock funds, heavily composed of index funds, underperformed the new recommendations which had a larger percentage of managed funds.

As for the severe underperformance of my original bond fund selections, it appears that their average performance was dragged down mainly by both of my two international bond funds, as well as the poor performance of the Vanguard Total Bond Market Index fund, VBTLX. Both of the international bond funds are US dollar hedged. Since the US dollar dropped during the 13-month period studied, this would mean that unhedged funds would have had the opportunity to profit to a greater extent than hedged funds. And since interest rates have gone up over 13-month period, a fund like VBTLX, which invests heavily in US government bonds would be particularly negatively impacted by rising rates.

Although predicting the future direction of both the dollar and interest rates is just as difficult as trying to predict a given fund's performance, I expect both of these trends to continue as they often do over multi-year periods.

Now look at the following tables with more complete data on the two groups of recommended funds.

Long-Standing Recommended Stock Funds

Fund (Symbol)

Category

13-Month Return

Category Return

Expense Ratio

Vanguard Small-Cap Index (VSMAX)

Small Blend

54.75

54.57

.05

Vanguard Extended Market Idx (VEXAX)

Mid-Cap Blend

61.61

45.02

.06

Vanguard Small Cap Growth Idx Adm (VSGAX)

Small Growth

45.54

45.35

.06

Vanguard 500 Index (VFIAX)

Large Blend

39.63

39.49

.04

Vanguard Equity Income (VEIPX)

Large Value

33.08

36.19

.28

Vanguard Windsor II (VWNFX)

Large Value

48.79

36.19

.34

Vanguard Energy (VGENX)

Energy

21.34

57.74

.33

Vanguard Growth Idx (VIGAX)

Large Growth

45.02

44.86

.05

Vanguard Pacific Index (VPADX)

Pacific Asia

32.60

32.43

.10

Vanguard International Growth (VWILX)

Foreign Large Growth

59.21

36.80

.33

Vanguard Europe Idx (VEUSX)

Europe

38.14

37.89

.10

Vanguard Emerging Markets Idx (VEMAX)

Emerging Markets

44.23

43.70

.14

Tweedy, Browne Global Value (TBGVX)

Foreign Large Value

28.53

36.80

1.37

Notes: All results in this article are through 6/30/21 and are not annualized. Vanguard Energy is no longer recommended as it was 13 months ago, although it is included here to show complete results for the June 2020 recommendations; it has been replaced by Vanguard Total Stock Market Idx Adm (VTSAX).

Long-Standing Recommended Bond Funds

Fund (Symbol)

Category

13-Month Return

Category Return

Expense Ratio

Vanguard CA Interm-Term Tax-Exempt Inv (VCAIX)

Interm Muni

3.29

4.24

.17

PIMCO Total Return Instl (PTTRX)

Interm Core Plus

2.33

4.22

.70

Vanguard Total Bond Market Index Adm (VBTLX)

Interm Core

0.26

0.16

.05

Vanguard High-Yield Corporate Inv (VWEHX)

High Yield

10.83

10.83

.23

Vanguard Short-Term Investment-Grade Inv (VFSTX)

Short Term Corp

2.84

3.01

.20

PIMCO International Bond (USD-Hdg) Adm (PFRAX)

International Bond

3.26

5.63

.85

Vanguard Total Intl Bd Idx Investor (VTABX)

International Bond

0.47

5.63

.11

Newly Recommended Stock Funds and ETFs

The category returns are as shown in the first table above.

Fund (Symbol)

Category

13-Month Return

Expense Ratio

BNY Mellon Small Cap Stock Index Inv (DISSX)

Small Blend

65.78

.50

Schwab Small Cap Index (SWSSX)

Small Blend

61.23

.04

iShares Core S&P Small-Cap ETF (IJR)

Small Blend

66.25

.06

BNY Mellon MidCap Index Inv (PESPX)

Mid-Blend

49.28

.50

T. Rowe Price Extended Equity Market Index (PEXMX)

Mid-Blend

60.05

.35

iShares Core S&P Mid-Cap (IJH)

Mid-Blend

49.98

.05

JPMorgan Small Cap Growth (PGSGX)

Small Growth

49.77

1.25

BlackRock Advantage Small Cap Gr Inv A (CSGEX)

Small Growth

50.87

.75

iShares Morningstar Small-Cap Growth (ISCG)

Small Growth

42.52

.06

T. Rowe Price Equity Index 500 (PREIX)

Large Blend

39.43

.19

Schwab S&P 500 Index (SWPPX)

Large Blend

39.64

.02

SPDR S&P 500 ETF Trust (SPY)

Large Blend

39.48

.095

Fidelity Equity-Income A (FEQIX)

Large Value

37.06

.60

Franklin Equity Income Fund A (FISEX)

Large Value

32.34

.85

iShares Morningstar Large-Cap Value ETF (ILCV)

Large Value

32.23

.04

Fidelity Equity Dividend Income (FEQTX)

Large Value

36.16

.60

JPMorgan Investor Growth & Income A (ONGIX)

Large Value

30.08

.97

Schwab US Large-Cap Value ETF (SCHV)

Large Value

36.62

.04

Fidelity Natural Resources Fund (FNARX)

Energy

23.94

.89

Guinness Atkinson Global Energy Fund (GAGEX)

Energy

37.54

1.45

Energy Select Sector SPDR (XLE)

Energy

43.69

0.12

Voya Russell Large-Cap Growth Index Portfolio I (IRLNX)

Large Growth

43.94

0.43

Fidelity NASDAQ Composite Index (FNCMX)

Large Growth

48.85

0.29

iShares Core S&P U.S. Growth (IUSG)

Large Growth

42.87

0.04

Fidelity Pacific Basin (FPBFX)

Pacific Asia

43.18

1.11

Matthews Asia Growth Investor (MPACX)

Pacific Asia

50.33

1.08

iShares Asia 50 (AIA)

Pacific Asia

51.65

.50

Fidelity Advisor International Growth A (FIAGX)

Foreign Large Growth

32.87

1.30

Franklin Intl Growth A (FNGAX)

Foreign Large Growth

35.24

1.12

iShares MSCI EAFE Growth (EFG)

Foreign Large Growth

31.97

0.39

T. Rowe Price European Stock (PRESX)

Europe

36.74

.96

Morgan Stanley Europe Opportunity A (EUGAX)

Europe

63.79

1.38

WisdomTree Europe Hedged Equity ETF (HEDJ)

Europe

32.29

.58

T Rowe Price Emerging Markets Stock Fund (PRMSX)

Emerging Markets

40.11

1.21

JPMorgan Emerging Markets Equity A (JFAMX)

Emerging Markets

51.49

1.24

Schwab Emerging Markets Equity (SCHE)

Emerging Markets

43.26

.11

Dodge & Cox International Stock (DODFX)

Foreign Large Value

43.14

.63

Vanguard International Value Inv (VTRIX)

Foreign Large Value

41.43

.35

iShares International Select Div (IDV)

Foreign Large Value

35.69

.49

Newly Recommended Bond Funds and ETFs

The category returns are as shown in the second table above.

Fund (Symbol)

Category

13-Month Return

Expense Ratio

Schwab Tax-Free Bond (SWNTX)

Interm Muni

4.59

.49

Fidelity Interm Muni Inc (FLTMX)

Interm Muni

4.82

.34

iShares National Muni Bond (MUB)

Interm Muni

3.65

.07

Dodge & Cox Income (DODIX)

Interm Core Plus

4.35

.42

Fidelity Advisor Total Bond A (FEPAX)

Interm Core Plus

4.06

.75

iShares Core Total USD Bond Market (IUSB)

Interm Core Plus

1.47

.06

Fidelity Total Bond Fund (FTBFX)

Interm Core

4.37

.45

Metropolitan West Total Return Bd M (MWTRX)

Interm Core

1.82

.69

iShares Core US Aggregate Bond (AGG)

Interm Core

0.10

.04

Fidelity High Income Fund (SPHIX)

High Yield

11.31

.70

T Rowe Price High Yield Fund (PRHYX)

High Yield

13.34

.72

SPDR Portfolio High Yield Bond (SPHY)

High Yield

15.57

.10

MetWest Low Duration Bond Fund M (MWLDX)

Short Term Corp

2.11

.62

BNY Mellon Intermediate Bond Fund M (MPIBX)

Short Term Corp

1.82

.55

iShares 1-5 Year invmt Grd Corp (IGSB)

Short Term Corp

2.81

.06

Dodge & Cox Global Bond (DODLX)

International Bond

9.80

.45

PGIM Global Total Return A (GTRAX)

International Bond

5.92

.88

iShares JP Morgan USD Em Mkts Bd (EMB)

International Bond

9.37

.39

AB Global Bond A (ANAGX)

International Bond

2.47

.80

JHancock Opportunistic Fixed Inc. 1 (JIGDX)

International Bond

6.14

.96

Invesco Global Short Term Hi Yld Bd (PGHY)

International Bond

11.31

.35

It is interesting to observe that the newly recommended funds, on average, have higher expense ratios than my original recommendations, .47 vs .33%. Yet as stated above, the former had a higher average rate of return. In a volatile stock market such as we have now, perhaps managed funds that can move in and out of perceived favorable areas are best suited for higher returns, as likely reflected in the outperformance of the average US fund over the broad stock market index.

While my long-standing recommendations were slightly less strong performers as compared to my new recommendations over the last 13 months, I continue to recommend holding one's funds for longer periods of up to 5 years or more. I expect there is a good chance, by then, the original recommendation list will likely contain funds that turn out to be highly winning choices, perhaps even more so than the more recent list of fund recommendations.

This article was written by

Tom Madell profile picture
1.53K Followers
Tom Madell, Ph.D., is the publisher of Mutual Fund/ETF Research Newsletter, a free newsletter which began publication in 1999 with thousands of readers. It has become one of the most popular mutual fund/ETF newsletters on the internet, as shown here. His site has been named as one of the "Top 12 Investment Newsletters Focusing on Mutual Funds" at mutualfunds.com , an important fund information provider, under "Fund Newsletter". Also, recently his Newsletter was recognized as one of 5 expert mutual fund resources worth following offering free, and, in its case, particularly "unbiased, useful, and original advice" at http://funds-newsletter.com/fundreference-art.htm .He is also a researcher/writer/investor whose articles have appeared on hundreds of websites, including the Wall Street Journal, USA Today, Morningstar and in the international media.His articles have been among the most popular among those posted on the Morningstar.com website by non-Morningstar employed contributors.His recommendations have an outstanding, long-standing record of success . His complete list of former articles can be accessed at http://funds-newsletter.com

Disclosure: I/we have a beneficial long position in the shares of MY ORIGINAL LONG-STANDING FUND RECOMMENDATIONS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (29)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.