What information do you use to evaluate investment funds?

[Peter Gulia]

When a retirement plan’s fiduciary (whether it’s the plan’s sponsor/administrator, a § 3(38) manager, or a § 3(21) advisor) evaluates investment funds to consider which should be added to or removed from a plan’s menu for participant-directed investment, which sources of information does a fiduciary use?

 

Does a fiduciary look at the Beta, R2, Sharpe Ratio, Standard Deviation?

 

How does these measures aid, or distract from, one’s analysis?

 

Does a fiduciary use Morningstar?  Lipper?  Bloomberg?  Litman Gregory?  Zacks?  Zephyr?  Others?

 

Which sources do you like, and why?

 

[K2]

The key thing is to have a documented process and to follow it.  I don't think it matters much which data points you use or where you get the data from.  That said, the process must be prudent.  You can look at any number of MPT statistics, plus expenses and qualitative factors.  Just document the process and have it be prudent.

Admittedly prudence is a little gray.  There are generally accepted investment principles and it behooves one to hew closely to those.  But I don't think anyone strays too far from those without some sort of white paper to "prove" their process works.

Personally I've used Morningstar and Bloomberg in the past.  Morningstar is widely recognized, and Bloomberg contains a wealth of additional capabilities, such as economic reporting.

[WCC]

We see many advisers using third party scoring systems that take into account sharpe ratios, stan dev, beta etc. Many third party vendor platforms use feeds from Morningstar. Most plans we deal with have advisers who have access to these scoring systems. The advisers are generally not doing this alone or with their own analysis, it is the major broker dealers and RIA's that have their people building these systems.

[Peter Gulia]

kcbirm and WCC, thank you for your good help.

Any others' observations?