Two Simple Ways To Screen For Mutual Funds

Here are two simple mutual fund screeners to automatically create a shortlist from a chosen mutual fund category.  I have combined the monthly screener data – 3,5,7 year performance consistency and 1,2,3,4,5,6,7,8,9,10,11Y SIP and lump sum data to create this screener. Do give this a go and let me know what you think.

Why Did I Do This?

Two reasons:

1: I wanted to present the monthly data (check out the June data and archives) in a user-friendly way.

2: I am trying to build a free, open-source robo advisory template. This screener (rather the one updated with your feedback of the current version) will form an important of that portal in presenting users with a shortlist of equity funds from a category to choose from. I wanted to complete template and send it for beta-testing by the end of this month, but it might take a bit longer than that.

How is screening done?

The Excel file has 3 screens.

Screen 1 and Screen 2 are used in the Excel macro to filter funds. Do not touch them if you dont know how to use Excel data filters.

Screen 3 is for you to play with.

Screen1 : only funds that have returned at least 10% for the last 1,2,3,4,5,6,7,8,9,10,11 year lump sum and SIP returns.

This may seem like a broad screen at first sight, but you will notice that only 74 out of 303 equity funds considered (more will be added in coming months) fit this bill.

Screen 2: Only funds that have beat the chosen category benchmark (see list below) at least 50% of every possible 3Y ,5Y and7Y periods between April 3rd 2006 to June 2nd 2017 make the shortlist – 87/303. This is a better screen than the one above as multiple returns are calculated.

The macro in the index sheet (see screenshot below) will (after you choose the required category) will apply screens 1 and 2 and then find funds which are common to both. For some categories, this would a nice shortlist – less than 5 funds.

Screen 3:  is not part of the macro and can be used as desired.

I have left out the downside capture (how much the fund lost when the index gave negative returns) and the upside capture (how much the fund gained when the index gave positive returns) from the screening process.

So this means the above screening is only on the basis of reward and consistency in reward and not risk. Since selection a mutual fund is hardly as important as knowing how to review its performance, I think this is decent enough for an investor who understands asset allocation for a goal and the importance of category choice.

I shall however add rolling downside and upside capture feature to this screener next month. I have lost faith in metrics like standard deviation, alpha, beta, gamma, R-squared etc as they are plain invalid – just because something is easy to calculate does not make it useful. The only trouble is to identify better alternatives. This is an ongoing journey for me.

You can manually change fund categories as shown below.

Screener-screenshot

Give this a try and let me know your feedback so that I can improve it.

Download the freefincal mutual fund screener – robo advisory test module

You can also check out the Value Research based screener: Mutual Fund Screener Version 6.0 and Mutual Fund Screener Version 6.0. 

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7 thoughts on “Two Simple Ways To Screen For Mutual Funds

  1. Hi Sir, In step 1 where we select category of funds from the drop down, regardless of which category we select, ‘common’ worksheet is only picking up balanced funds (Macros is enabled, tried closing the file & reopening but doesn’t work). Can you pls check? Sorry got a bit confused between the place marked for posting a comment vs asking a question and posted this in ‘ask a qn’.. Thanks!

  2. When you consider cumulative returns over 1,2, 11Y periods, whether it doesn’t indirectly include the RISK effect (defined by Upward-Downward Capture or by the condemned metrics like standard deviation, alpha, beta, gamma, R-squared etc)?

    Can you give some examples of funds qualifying as good funds on Reward-Consistency but disqualified on Risk metrics?

    As far as Review part is concerned, a fund seldom deteriorates suddenly, but does so over a period of time. Can you use Quarterly Returns (readily available for 12 quarters from Value Research but may be computed by your calculator as well) to indicate the creeping decline of a fund? This may be a substitute for Downward Capture as well as Review.

    1. I need two data points to calculate a return – start and end date. There is no way any kind of risk can be factored into this either by a “condemned metric” or otherwise.
      The definition of a “good fund” is subjective. I look at a fund that has given me 25% over 25 years, I have no idea how risky the journey was.

      Sure you can use quarterly returns,but I would add a risk metric too as funds that contains downside for many quarters often is an underperformer (eg. quantum long term equity a while back) and I will not be in a hurry to discard such a fund.

  3. Dear Pattu – This is a very useful tool. Thank you much for preparing this. Looking forward to the next version of the tool incorporating the capture ratio parameter.

  4. I think a selection criteria like “at least 10% return” will fail in certain situations. Suppose you had been carrying out the same exercise in 2008, 2011, 2015 or 2016 when all or very few schemes gave positive or significant returns, the 1Y-return column would have filtered out all or most of the schemes.

    A better selection criteria would be “above average” or “top quartile” returns. Alternatively, you may consider only 3Y,4Y,5Y,… returns, ignoring short terms 1Y,2Y returns altogether.

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