The 5 Star LB Ratings System

September 4th, 2012 by

The LB Ratings system is a 5 star system with Fund’s rated 1 star being the worst and 5 stars being the best.  Here is the rationale behind the LB Ratings system and the factors which go into each level.

 

 

We love the fund and would consider investing ourselves

 

 

For actively traded funds, this means 1. The fund has outperformed other funds in its category over both short and long term time periods 2. Less risk than funds with similar performance. 3. Low Fees 4. Consistent portfolio management.

For passively traded funds, this means: 1. Low fees 2. close tracking of the underlying index  3. At least 3 years of trading history 4. ETF Tracks a Learn Bonds approved index.

 

 

 

We like the fund and would consider investing ourselves. Same criteria as 5 star funds, however we may have one or two small issues with the fund.

 

 

 

We would not invest in the fund.

 

 

 

For actively traded funds, this means there is problem in one of the following areas: Short-term performance, Long-term Performance, Level of risk relative to performance, High fee, and/or Tenure of management.

For passively traded funds, this means there is a problem in one of the following areas: high fees compared to other passive funds, has problems tracking the index and/or liquidity issues.

 

 

We would not invest in the fund. This rating is reserved for new funds or funds with new managers.

 

 

 

 

We suggest that you sell this fund if you own it.

 

 

 

 

LB Ratings are based on our core beliefs here at Learn Bonds:

  • Total Return (price changes plus yield) is more important than yield. Don’t choose a fund which pays a high yield because you need income. If you need access to funds at specific times, we recommend buying individual bonds or defined maturity bond funds instead.  (Learn More:bonds vs. bond funds.)
  • Look for the highest total return for the least amount of risk. We want to balance the returns of a bond fund against the risks.  We primarily want to minimize interest rate risk and credit risk.
  • Bond Funds typically will provide lower returns than stocks and that is OK. A combination of stocks and bonds is less risky, than stocks alone. With bonds, you get an investment that will tend to perform better than stocks during hard economic times. If you need money during a stock market downturn or shortly afterward, you will be happy to have bonds in your portfolio.  Read how bonds add diversification to your portfolio here.
  • For most investors, one or two bond funds are all you need.  Most investors should start off with a core bond fund. For investors in a high tax bracket, we suggest a municipal bond fund as well. For more on how to decide go here.
  • If you are not sure about allocation go with 60% Stocks and 40% bonds.  Read why the 60/40 rule of portfolio allocation may be all you need.

Every LB Rating also has a designation of active or passive.  Passive versus active investing is more a question of personal style, than a question of  right or wrong. However, as you will see in our explanations of the star ratings below, the criteria we use to judge a passive fund versus and active one is different. If you do know know the difference between an active and a passive fund go here.

 

Print Friendly
Please Share!