Overall ratings are based on five-year, risk-adjusted returns. They are calculated by subtracting a fund's risk-of-loss factor (see RISK) from historical pretax total return. To get a positive overall rating, an equity mutual fund must beat the S&P 500 on a risk-adjusted basis. For the overall rating of bond funds, taxable funds and tax-exempt are treated separately. Category ratings are based on risk-adjusted returns of the funds in that category. The ratings are as follows:
Equity Funds:
Each U.S. diversified fund is classified by market capitalization of the stocks in the portfolio and by the nature of those stocks. If the median market cap is greater than $5 billion, the fund is large-cap; from $1 billion to $5 billion, mid-cap; and less than $1 billion, small-cap. "Value" funds are those whose stocks have price-to-earnings and price-to-book ratios lower than that of the S&P 500. ``Growth'' funds have higher than average p-e and p-b ratios. "Blend" funds are those in which the ratios are about average. Hybrids mix stocks and bonds, and possibly other assets. World funds generally include U.S. stocks; foreign funds do not. Sector and regional foreign funds are as indicated.
Bond Funds:
Bond funds are categorized by issuers of the securities they buy and the maturity of those bonds. General bond funds invest in a variety taxable securities, usually investment grade. Such funds can be long-term funds, with average maturities of 10 or more years; intermediate-term funds, with average maturities between 4 and 10 years, short-term, with average maturies of between one and four years, and ultrashort, with average maturity below one year. Government funds must have at least 90% of their securities from the U.S. government or government-backed issuers. Municipal bond funds invest only in tax-exempt municipal funds; national funds are diversified across the U.S.; single-state funds hold bonds of only one state. Government and municipal funds are also categorized by maturity, except the ultrashort category includes only corporate and government funds. High-yield bond funds must have at least 65% of their assets in high-yield, or bonds rated below investment grade. Convertible bond funds invest in yield-bearing securities that are convertible into equity; international funds invest mainly in non-U.S. and/or nondollar bonds; multisector funds invest in a variety of bonds.
Net Assets:
Assets under management (in millions of dollars), adjusted for liabilities.
Sales Change:
The cost of buying a fund. Many funds take this "load" out of the initial investment, and for ratings purposes, returns are reduced by these charges. Loads may be levied on withdrawals.
Expense Ratio:
Percentage of fund assets spent on expenses, including investment management, adminstrative, and possibly distribution fees.
Total Return:
A fund's net gain to investors, including reinvestment of dividends and capital gains at month-end prices. Multiyear periods are expressed as average annual total return.
12-Mo. Distributed Yield:
Income distributions as a percent of net asset value, adjusted for capital-gains distributions.
Turnover:
Trading activity, the lesser of purchases or sales divided by average monthly assets.
Risk:
Potential for losing money in a fund, or risk-of-loss factor. For each fund, the three-month Treasury bill return is subtracted from the monthly total return for each of the 60 months in the ratings period. When a fund has not performed as well as Treasury bills, the monthly result is negative. The sum of these negative numbers is divided by the number of months. The result is a negative number, and the greater its magnitude, the higher the risk of loss. This number is the basis for BW ratings, category ratings, and the risk level. Risk is characterized as: very low, low, average, high, and very high.
Ratings
| A | Superior |
| B+ | Very Good |
| B | Above Average |
| C | Average |
| C- | Below Average |
| D | Poor |
| F | Very Poor |
