Fund I-Q Scorecard
  1. Fund Investment Qualities
  2. Fund I-Q Scorecard

Fund I-Q Scorecard

By Richard Loth (Contact | Biography)

In general, scorecards are a handy tool to record the results of any number of sporting events, be that a round of golf or a baseball game. Essentially, a scorecard collects a variety of quantitative data (numbers), which are used by players, coaches, referees, umpires and judges to keep track, in an orderly fashion, of certain facets and results of the game being played.

So it is with a Fund Investment-Quality Scorecard (FIQS) for mutual funds. When it comes to selecting and deciding to hold mutual funds, investors need to know the "score." The purpose of the Fund I-Q Scorecard is to help fund investors to collect key data in an organized and focused fashion and to make informed judgments as to the investment quality of a mutual fund investment opportunity.

Users of the FIQS need to recognize that, unlike a sporting event, not all of the information in this scorecard is purely quantitative. In other words, there is room for qualitative judgments, which may vary depending on how a given investor interprets the data presented. Investors with different mindsets will see things differently.

This element of subjectivity in evaluating the results of a mutual fund's scorecard rating should not be material. The majority of a fund's investment qualities are quantifiable - the risk-return profile, managerial tenure and structure, portfolio turnover, expense ratio and total returns. The point to keep in mind is that the FIQS is not meant to produce a rigid, numerical rating. What is intended is to provide an informational framework that allows an investor to make a common-sense evaluative judgment on the merits, or lack thereof, of a mutual fund.

As a user of the Fund Investment-Quality Scorecard, do not worry about being 100% correct on each and every data point. The benefit from this investment research tool is that it helps fund investors organize their thoughts on the pros and cons of a mutual fund investment opportunity, which should lead to an informed investing decision.

The Fund Investment Qualities in Action
Let's look at the Dodge & Cox Stock (DODGX) fund in order to provide readers with an idea of how all this theory works in practice, using the illustrative fund reports from Morningstar (see the PDF of this report here) and Value Line (see the PDF of this report here).

So in terms of the fund investment qualities for DODGX:

Fund I-Q No.1: DODGX's Investment Style
In this regard, while there has been some minor inconsistency, it probably isn't material, and moving into the large cap blend box is not any great departure from the fund's value objective. The consistency of the fund's management investment style appears to be favorable, falling somewhere between stable and minor change. Also, DODGX's superior total return performance indicates that the fund's managers seem to be making smart decisions.

Fund I-Q No.2: DODGX's Risk-Return Spread
DODGX's risk-return spread is positive, which meets an indispensable investing requirement.

Fund I-Q No.3: DODGX's Size and Style Compatibility
The fund's $52.2 billion in assets increased some 272% from year-end 2002 to year-end 2005! There are only 87 holdings in the portfolio, which implies some rather large individual holdings. Morningstar's research analyst comments on this circumstance as a "challenge." The fund has been closed for some time, and returns continue to be high, registering above all the fund's benchmarks. The fund's size is a concern and needs to be watched. As long as the fund's total return numbers do not suffer, the situation seems under control. (To learn more, read Are Bigger Funds Always Better?)

Fund I-Q No. 4: DODGX's Management Tenure and Structure
This fund's team management approach assures continuity and obviates any concern over a match of manager tenure and fund performance. (For more on team management, read Mutual Fund Management: Team Players Or All-Stars?)

Fund I-Q No.5: DODGX's Portfolio Turnover Ratio
The fund's historical record of low portfolio turnover is very positive; way below industry and peer group percentages. This fund investment quality is important for a fund of this size.

Fund I-Q No.6: DODGX's Costs
DODGX's modest expense ratio makes it a low-cost performer with no sales charges or objectionable 12b-1 fees applied. This is a highly favorable fund investment quality.

Fund I-Q No.7: DODGX's Total Returns
Over all the periods measured, DODGX's total return performance is simply outstanding - a very impressive long-term record.

Fund I-Q No.8: DODGX's Analytics
Lastly, Dodge & Cox's reputation as one of the most respected fund companies in the industry is confirmed by its top-rated fund stewardship. Morningstar's "Take" on this fund is very favorable, and it is designated as an Analyst Pick. Overall, this fund shows a high investment quality rating.

Return to the Main Menu.

  1. Fund Investment Qualities
  2. Fund I-Q Scorecard
  1. Qualitative Analysis

    Securities analysis that uses subjective judgment based on nonquantifiable ...
  2. Alpha

    Alpha is used in finance to represent two things: 1. a measure ...
  3. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  4. Liquidity

    The degree to which an asset or security can be quickly bought ...
  5. Equity

    Equity is the value of an asset less the value of all liabilities ...
  6. Profit Margin

    Profit margin is part of a category of profitability ratios calculated ...
  1. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  2. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  3. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  4. Why is fiduciary duty so important?

    Fiduciary duty is one the most important professional obligations. It basically provides a much-needed protection for individuals ... Read Full Answer >>
  5. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  6. Why do financial advisors have a fiduciary responsibility?

    Financial advisors governed by fiduciary duty are bound by law to act in the best interests of their clients at all times. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  2. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  3. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  4. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Capitalized Cost

    An expense that is added to the cost basis of a fixed asset on a company's balance sheet. Capitalized Costs are incurred ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!