Scoring Risk-Return Data
AAA
  1. Perspectives on the Risk-Return Relationship
  2. Understanding Mutual Fund Returns
  3. Fund I-Q No.2: Favorable Risk-Return Profile
  4. Scoring Risk-Return Data
Scoring Risk-Return Data

Scoring Risk-Return Data

By Richard Loth (Contact | Biography)

This is the entry we need to complete in the Fund Investment Quality Scorecard for an analysis of a fund's risk-return profile:



Obviously, the greater the positive risk-return spread, the more favorable the rating. Negative spreads fall into the "other" classification and are not indicative of investment quality in the Fund I-Q Scorecard.

It is important to understand that all mutual fund investment research services use similar risk-return qualifiers. These indicators measure a fund's risk-return relationship within the context of its investment category (large cap value, small cap growth, etc.) and not the whole mutual fund universe. Each fund category has differing investment characteristics, making a universal risk-return qualification impossible - and inappropriate. With mutual fund risk-return classifications, as well as other types of investments, it is simply a necessity to make "apples to apples" comparisons.

Morningstar's well-known star ratings reflect historical risk-adjusted performance and are extremely popular with investors shopping for mutual funds. However, while helpful in this process, even Morningstar cautions the investing public that "the star rating is a useful tool, but it's no substitute for doing your homework. Investing is much too complex for any single measure to sum up the entire merit of a security."

Therefore, serious fund investors should embrace the use of the Fund Investment-Quality Scorecard in making fund investment decisions. While this approach does require a bit of "homework," it will allow for a solid, thorough treatment of mutual fund analysis.

Return to the Main Menu.
Proceed to the next chapter on Fund Size and Performance.


  1. Perspectives on the Risk-Return Relationship
  2. Understanding Mutual Fund Returns
  3. Fund I-Q No.2: Favorable Risk-Return Profile
  4. Scoring Risk-Return Data
Scoring Risk-Return Data
RELATED TERMS
  1. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  2. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  3. Bear Fund

    A mutual fund designed to provide higher returns when the market ...
  4. Ulcer Index - UI

    An indicator developed by Peter G. Martin and Byron B. McCann ...
  5. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  6. Investment Company Act Of 1940

    Created in 1940 through an act of Congress, this piece of legislation ...
  1. What is the difference between an income statement and a balance sheet?

    Find the current value of a business by reading the balance statement and determine whether operations are efficient by analyzing ...
  2. What are the differences between operating expenses and cost of goods sold (COGS)?

    Discover the differences between operating expenses and cost of goods sold, how each are calculated and why they are considered ...
  3. What are the differences between gross profit and gross margin?

    Learn how gross profit and gross margin are calculated and how each is used in fundamental analysis. Generally, these numbers ...
  4. Does gross profit account for sales returns?

    Discover how accountants record the return of a saleable item and how that might impact the gross profit for a firm, either ...
comments powered by Disqus
Related Tutorials
  1. Industry Handbook
    Investing Basics

    Industry Handbook

  2. Discounted Cash Flow Analysis
    Fundamental Analysis

    Discounted Cash Flow Analysis

  3. Ratio Analysis Tutorial
    Fundamental Analysis

    Ratio Analysis Tutorial

  4. Top ETFs And What They Track: A Tutorial
    Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

  5. Introduction to Stock Trader Types
    Active Trading Fundamentals

    Introduction to Stock Trader Types

Trading Center