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The winners for the Lipper U.S. Fund Awards 2016 were announced last week. And as is the case with awards ceremonies in any other industry, the list includes some mutual fund names that are deserving of the highest accolades but also a few snubs and oversights.
With that said, the Lipper Fund Awards aren’t exactly the Oscars. Lipper has a solid methodology for selecting its finalists. So you won’t find any popular-but-poor performers or any washed-up choices getting sympathy votes. You get just the cream of the crop that makes it through the Lipper screens, whether you agree with the picks or not.
Here’s a summary of the Lipper Fund Awards methodology:
- Funds must be registered for sale in the respective country, in this case the United States, at the end of the evaluation year, which is 2015 for this particular awards group.
- Funds must have a minimum of 36 months of performance history as of the end of the evaluation year, 2015.
- Fund companies and management firms, or what Lipper calls “groups,” with at least five equity, five bond or three mixed-asset portfolios in the respective asset classes are eligible for a group award.
- The best (or lowest) average performance rank for the three-year period will be the winner of a respective group award.
Therefore, Lipper is not just looking for the top performers of 2015 but the best funds that consistently ranked high in their peer groups for the three years ending Dec. 31, 2015.
Here’s a complete list of the 2016 winners:
- Best Overall Fund Group – Large: TIAA Investments
- Best Overall Fund Group – Small: Thrivent Mutual Funds
- Best Equity Fund Group – Large: Oakmark Family of Funds
- Best Equity Fund Group – Small: Primecap Management
- Best Fixed Income Group – Large: Metropolitan West
- Best Fixed Income Group – Small: Guggenheim Investments
- Best Mixed Asset Group – Large: TIAA Investments
- Best Mixed Asset Group – Small: Thrivent Mutual Funds
After a quick review of the award winners list, many mutual fund investors may wonder why a highly regarded fund company like Vanguard Investments didn’t make the list. Or they may wonder why TIAA Investments and Thrivent Mutual Funds combine for half the winner list.
Vanguard did make the Lipper Fund Awards winners list, although indirectly. Primecap Management manages Vanguard Primecap Fund (VPMCX), which is one of the best-performing large-cap stock funds. But you won’t see Vanguard funds as a whole performing in the higher ranks for any given three-year period because most of the funds are passively-managed index funds that tend to remain close to average in performance for shorter periods, although the low expenses often lead to outperformance of many asset groups in the long run.
TIAA Investments, best known for the TIAA-CREF family of funds, manages dozens of mutual funds, many of which are target date retirement funds that have performed well compared to their respective category peers in recent years. These funds typically invest in a blend of stocks, bonds and cash, which explains how TIAA won the Best Mixed Asset Group award.
Thrivent, although smaller in size than TIAA, also offers many funds that invest in multiple asset types and these are some of their top-performing funds in the past three years.
Metropolitan West is no surprise as a winner for fixed income, especially considering its dominance in the fixed-income world with funds like Metropolitan West Total Return Bond Fund (MWTRX), which has long been a leader in performance among bond funds.
Oakmark and Guggenheim are also respectable winners that deserve a place in the Lipper Fund Awards list.
Fund families that surprisingly didn’t make the winners list include Fidelity Investments and T. Rowe Price. Both companies have a large supply of top performing funds over the past three years, such as Fidelity OTC Portfolio (FOCPX) and T. Rowe Price Health Sciences Fund (PRHSX).
Are Performance Awards Useful?
The Thomson Reuters Lipper Fund Awards can be useful with regard to pointing out trends and in guiding investors toward a further investigation of mutual fund families and management companies that are more than just one-hit wonders.
But past performance, even if consistent, does not guarantee future results. While Lipper’s three-year look-back period is much more reflective of solid portfolio management than just one year, it still doesn’t capture a full market cycle.
For example, the three years ending Dec. 31, 2015 doesn’t include a bear market. And some of the best long-term performers are often those that put up average returns in bull markets but above-average returns in bear markets. Therefore, this years’ Lipper Fund Awards winners could primarily be beneficiaries of market trends or particular investment styles that are currently in favor, while management skills could play secondary roles.
Performance awards are good for giving a nod to fund managers and fund companies for their recent work but such accolades aren’t sufficient qualifications alone to buy a particular mutual fund.
Kent Thune is the owner of an investment advisory firm in Hilton Head Island, S.C. He personally does not hold any of the aforementioned securities, although he holds PRHSX for some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities.
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