FAQs

The Value Line Mutual Fund Survey

1) How does Value Line compute mutual fund ranks?

Value Line uses a dual Ranking System whereby each fund receives an Overall Rank, measuring various performance criteria taking risk into account, and a Risk rank, to show the total level of risk the fund has assumed. Overall Ranks are calculated separately for each of three broad categories: equity and partial-equity funds, taxable fixed-income funds, and municipal bond (tax-free) funds. Risk Ranks are calculated for each of two broad categories: equity and partial equity funds, and taxable and tax-exempt fixed-income funds.

Value Line calculates Overall Ranks on the basis of three factors: one- and five-year persistence of relative growth in fund returns, and three-year risk-adjusted performance. Growth Persistence, shown individually in the Rankings box on the page (middle right side), is a proprietary Value Line measure that rewards funds for the consistency with which they outperform their broader universe of equity, taxable fixed income, or municipal bond funds. Funds are rewarded only for the consistency with which they outperform, not for the magnitude of the outperformance. The three-year risk-adjusted performance is calculated by dividing a fund's three-year total return by its standard deviation. These three measures are combined into a total score. The funds are then ranked from 1 (Highest) to 5 (Lowest).

Risk Ranks are based on standard deviation, a measure of a fund's volatility. Value Line uses a three-year period for this calculation, which provides enough data for reliable measurement without overweighting data that are too old to be relevant. Standard deviation measures the variation of a fund's returns, exclusive of any other factors.

2) What do the ranks mean?

Overall and Risk Ranks are distributed across the Value Line mutual fund universe as follows: Ranking distributions Rank % of Funds
1 - Highest / Safest 10%
2 - Above Average / Lower Risk 20%
3 - Average / Average Risk 40%
4 - Below Average / Higher Risk 20%
5 - Lowest / Highest Risk 10%

3) How do I find out how a fund is doing in its particular Objective or Peer group?

In the Performance box (which is located just below the data array and graph), we show how a fund performs relative to both its Objective and Peer group. First, we show the fund's trailing returns for time periods ranging from 3 months to 20 years. In addition, we show the fund's performance relative (+/-) to the S&P 500 Index, its broad Objective group, and its more specific Peer group (if applicable). Finally, we show the fund's percentile rank versus its Objective group for each time period.

4) How do you choose which funds get coverage and which do not?

Unfortunately, there is no way for us to cover all of the mutual funds that are available to investors. When selecting a fund for coverage we look at the length of time the fund has been in existence, its relative performance, its size (total net assets), and other factors that might affect inclusion.

5) Do mutual fund companies pay to be included in The Value Line Mutual Fund Survey?

No. Value Line is not compensated by the mutual fund companies that sponsor the funds that we review. This allows us to be totally objective in our analysis. Value Line prides itself on its role as the champion of the individual investor. Receiving any type of payment from a fund family would diminish our ability to help you, the investor.

6) Does the roster of mutual funds covered by Value Line change?

Yes. Although this is not a regular occurrence, there are often situations which require a change in our coverage. Such events include fund family mergers, fund liquidations, or fund mergers. We will also remove funds that have underperformed over the long term or that have extremely small asset bases. In addition, we attempt to keep the list of funds that we cover well rounded. Unfortunately, this often requires that we remove older, laggard funds to add smaller, more vibrant offerings.

7) What is a manager rating and why do some managers have ratings while others do not?

Value Line's Manager Ratings measure the risk-adjusted performance of a fund's management relative to the fund's Objective or Peer group. This performance rating is based on the manager's "value added" while with the fund—that is, the difference between a manager's actual average annual return while at the fund and the "expected" return as determined by the level of risk assumed relative to the fund's peers.

In calculating Manager Ratings, risk is measured by the standard deviation of monthly returns since the manager took over the fund, expressed as a ratio to the standard deviation of the fund's Objective group for the same period (after adjusting for the risk-free rate of return on a U.S. Treasury Bill). Once the fund's relative risk is measured, it is used to calculate the annualized return that would be "expected" when assuming such a risk level within the Objective group. This "expected" return is subtracted from the fund's actual average annual return, and the resulting figure can be considered the value added by the manager while with the fund. If a manager has been in place for less than two years, no value is calculated.

8) How do you determine a fund's style for the Style/Performance Box at the bottom left of the page?

The Management Style box is a representation of the characteristics of a fund's securities. For equity funds, the vertical axis represents market capitalization of equities in which the fund invests; the horizontal axis reflects the value-growth continuum as measured by the overall price/earnings and price/book ratios of the portfolio's securities. Lower price/earnings and price/book ratios are value characteristics, while higher ratios are growth characteristics. The vertical axis, representing market capitalization, also contains four positions. The bottom row, denoting the smallest market capitalization, includes portfolios whose weighted-average market cap is under $1 billion. The next row includes funds with average-weighted market caps of $1 billion to $5 billion; the third, those with market caps of $5 billion to $10 billion; and the top row represents portfolios with weighted-average market caps greater than $10 billion.

For bond funds, the vertical axis indicates the quality of the holdings, based on the issuers' creditworthiness as measured by a rating agency, while the horizontal axis represents the average maturity of the portfolio. The credit-quality axis is divided into four groups based on the weighted-average credit rating of each fund's bond holdings. An average rating of AAA appears in the highest box, AA to A in the next highest box, BBB in the next, and below BBB in the lowest box. The horizontal axis of the box indicates the weighted-average maturity of each fund's fixed-income holdings. The lefthand or shortest position represents a weighted-average maturity of under three years; the next represents a weighted-average maturity of between three and seven years; the next an average of between seven and 10 years; and the righthand box represents an average maturity of more than 10 years.

9) How do I interpret a fund's sector weightings?

A fund's sector weightings are shown in the Sector Weightings box on the middle of the left-hand side of the page. These numbers are generated using a fund's actual holdings from the date shown at the top of the Sector Weightings box. These numbers can be used in a number of ways. For starters, investors can compare a fund's weightings relative to the generally accepted market proxy, the S&P 500 Index. This allows investors to see where the fund is overweighted and underweighted versus this broad benchmark. This information can also be used to make comparisons between funds. In essence, if you want to find a Growth fund with a lot of technology exposure, you can use these figures to find what you are looking for both relative to the market and the fund's Objective group.

10) How do I interpret the Price/Earnings, Price/Book, 5-Year Earnings Growth Percentage, and Average Market Capitalization numbers in the Statistics box?

All of these figures provide useful information about a mutual fund's portfolio. We calculate the numbers from the fund's actual holdings as of the date at the top of the box. Unfortunately, there are times when information is not available for these data points, so, to help investors better utilize the numbers we present, the percent of the stock portfolio used to compute the figures is listed. To facilitate the comparison between both the index and other funds, relative numbers are listed as well.

Price/Earnings, commonly known as P/E, is a measure of relative value. Essentially, it is the company's price divided by its earnings. In general the higher the P/E, the more you are paying for earnings. Stocks with P/Es above 20 are considered growth oriented, while those with lower P/Es are considered value oriented.

Investors can use the statistics provided on the page to be certain that a portfolio manager is actually following the discipline that he/she says is being applied. If management states that it uses a value approach, then this number should be low. A growth approach, however, should result in a higher figure. This number can also be used to discern between funds. If you are looking for an extremely aggressive offering, you might look to see if the fund's average P/E is higher than that of the S&P 500 Index and/or its Objective group (denoted by a number larger than 1). If it is not higher, then another offering might be more appropriate to your tastes.

Price/Book, often referred to as P/B, is a measure of a stock's price in relation to its book value. Lower P/B figures are often associated with slow growth, out of favor stocks, and value stocks. These numbers can also be used to assess both a fund's investment style and its relative P/B level compared to both the index and its Objective group.

5-Year Earnings Growth Percent is the average annual earnings-per-share growth of all the stocks held in the fund's portfolio. This figure offers insight into the fund manager's emphasis on the historical earnings-growth record of its individual holdings.

Average Market Capitalization represents the weighted average of all a fund's holdings. Market capitalization is calculated by multiplying the current value of a stock by the total number of shares that company has outstanding. When calculating this figure, Value Line weights each holding by the actual amount of assets that a fund has invested in that stock. Investors can use these figures to analyze which market-cap sector the fund emphasizes. Generally market capitalization is broken down into three groups:

11) What does a fund's tax status mean?

Tax status is, essentially, a fund's unrealized appreciation. Put another way, this number represents the percentage of a fund's assets that represent gains or losses on securities held. The figure is calculated as of the date at the top of the box, which in most cases will correspond with the most recent holdings date. This is an important figure for investors to consider because if and when these gains are realized through the sale of appreciated securities, the proceeds must be distributed to shareholders as taxable capital gains.

12) How do I know if a fund's expense ratio is too high?

Fees are an important aspect of mutual fund investing. High fees take away from a fund's return. Indeed, within the bond fund universe, the better performing funds often have the lowest fee structures. Within the data array in the middle of the page, Value Line provides both the actual expense ratio and this figure's relative value when compared to the fund's objective group. Those funds with relative numbers over 1 tend to charge shareholders more than average, while those with numbers below 1 tend to charge less than average.

13) How did my fund do in the last market cycle?

The box labeled Past Market Cycle Performance provides a fund's performance (not annualized) over the three most recent market cycles relative to both the S&P 500 Index and the fund's Objective group. These numbers offer an indication of a fund's up- and downside potential in different market conditions. Very often, those funds that perform best in bull markets perform poorly in bear markets, while those that perform best in bear markets tend to lag in bull markets.

14) How should I analyze a fund's top holdings?

There are three very important aspects of a fund's top 20 holdings. For starters, the sheer size of a stock in the portfolio should be considered. Most funds are well diversified, but some funds hold a significant amount of assets in a limited number of securities. This will show up in the fund's top 20 holdings list. If a fund has more than 50% of its assets in its top 20 holdings, the manager is holding a fairly concentrated portfolio. Although this is not, in and of itself, a bad thing, it should be considered when selecting a fund. Secondly, a fund's top holdings can used to examine the holdings overlap between funds. For example, if you are considering purchasing two Growth funds that both have a large-cap bias, you might find that they both hold the same stocks. In this instance, it may make sense to only buy one of the two funds. Lastly, Value Line provides our proprietary stock rank for each fund holding that is covered by our stock analysts. This benefits mutual fund investors in two ways; investors can get an unbiased view of a stock holding's probable six-month stock performance, and investors can use the information in conjunction with the Value Line Investment Survey, examining what our analysts say about a fund's holdings.

15) How can I get the most out of the Value Line Mutual Fund Survey Index?

Every two weeks you receive both the Index and the Ratings&Reports sections. Many investors overlook the Index, instead focusing on a fund's full-page coverage. Although reading our analysis of a fund is important, our Index may provide more up to date information than the pages. Indeed, a fund's NAV, dividend yield, and performance history are updated each month. Further, we update every fund's Overall Rank, providing arrows next to those whose rank has recently moved up or down. To get the most out of The Value Line Mutual Fund Survey, subscribers should look not only at the full pages, but also at the Index provided with each issue.

16) I would like to speak to an analyst.

Unfortunately, this isn't practical. Our staff of analysts has been hired and trained to analyze funds and write commentaries for The Value Line Mutual Fund Survey and, to be fair to all subscribers, they do not have time to provide personalized advice or information.

17) What should I do if I find an error in a report?

If you think you have found an error in any of our publications, we would very much like to hear from you so that we can correct the mistake. Please write or call us. If you call, let the operator know that you want to report an apparent error, and he/she will connect you with an administrative assistant in the Mutual Fund Research Department. Please address your written comments to Director of Mutual Fund Research.