Mutual Fund Evaluation & Selection

Strategic portfolio management includes the selection of investments that are likely to produce results that meet client requirements of both safety and growth potential. Both income investments for stability and predictability, and equity or stock investments for capital growth, are selected. 

Over the years, the Appel companies have developed strategies for picking mutual funds as well methods for trading them.

Selection Rules:

1. Buy lower volatility mutual funds, funds that do not fluctuate in price by more than market indices such as the S&P 500. 
    

2. Purchase funds that involve no or minimal  commissions for purchase or redemption.  Avoid  commission intensive fund classes such as “B” shares (back end loaded). Research shows that load funds do not provide as favorable rates of return as no-load funds.  
    

3. Buy funds with the lowest expense ratios – charges that management imposes for running the funds, advertising costs passed along to investors, or transaction costs such as commissions if the fund is actively traded.  The average equity mutual fund has annual expenses of about 1.32%, which represent a drag on your returns. Index funds, which involve minimal expenses, tend to outperform approximately 80% of all mutual funds.
    

4. It probably pays to diversify mutual fund portfolios, but as a general rule mutual funds that invest in smaller capitalization stocks – smaller companies – tend to outperform funds that invest in larger companies. 

A major cornerstone of client portfolios is the selection of mutual funds and other equity related investments on the basis of relative strength, that is,   portfolios are concentrated in investments that have been leading their peers in performance, and investment is maintained for as long as this performance remains in the top tier of the mutual fund universe tracked in the company.

In order to select mutual fund candidates for purchase, a universe of thousands of mutual funds is divided into groupings based upon the extent to which each fund has, historically, undergone broad price swings (amount of volatility).  The funds in each group are ranked on past performance over various time frames. Purchases are made from the highest ranking funds in each volatility group.