Bermuda mutual fund offerings available listed by criteria. Part 5. This is the last of this series on balanced asset allocation mutual funds available for the investor in Bermuda.

I’ve put together a chart for you all, dear readers, of various balanced mutual funds offered by Bermuda banks and/or investment as at December 2014, a full year of reporting. Information was taken directly from their websites, or obtained directly from a firm representative.

Reviewing the chart, there are a number of things to keep in mind:

1. You won’t see all Bermuda financial institutions listed, as not all carry a balanced mutual fund offering.

2. No opinion is expressed as to which fund is the best investment in the group because each fund’s asset-allocation, while within the balanced fund mandate, is structured quite differently. Comparisons would be distorted.

3. The chart enclosed has — not stated — in some categories indicating that the information was not listed or unobtainable from the mutual fund fact sheets.

4. I also won’t be rating any fund’s performance against another fund in the same peer group due to insufficient comparison criterion on the mutual fund fact sheets, except the Janus Balance Fund. You should understand that within the global investment industry, mutual funds are categorised and rated for performance very carefully in their respective peer group allocations. Additional information can be found in Morningstar, Bloomberg, etc

5. It will be your job to do the rest of the homework needed to make your investing decision.

6. One way to start is by meeting with a representative of each firm, then do your best to find additional research on your own.

Criteria

Let’s look at some of the reporting criteria on the fact sheets, in order stated.

Fund name and ISIN number. Many funds sound the same, making research confusing. Listed on the fund fact sheet (4 out of 6) is the real unique uniform identifier for security exchanges and registered residence of the fund — the ISIN number (International Securities Identification Number), a 12-digit number alphanumerical code for stock shares, bonds, funds, options, derivatives, and futures. Type any ISIN identifier, say IE0009514989, into Google and up pops a Janus mutual fund registered in Ireland, along with links to various investment publications.

Fund composition. Denotes whether the fund manager is picking single securities or using underlying funds from various sectors and allocations. Some managers will use stripped down cost-efficient underlying index funds instead of single securities for greater diversification, while other managers prefer the singles for greater control and trading flexibility.

Brand Name or Proprietary. Brand name mutual funds are carried across the globe, are portable (from one investment firm to another, generally). They are very brand recognisable, ie Fidelity, Blackrock, etc and can be purchased by just about any financial representative in a jurisdiction. Proprietary mutual funds are developed within an investment firm / bank and are sold under the firm’s name, exclusively. Generally, they cannot be transferred to another firm.

Number of security positions. Provides an idea of the asset allocation and diversification content.

Portfolio turnover rate. This is an indication of the amount of trading the fund undertakes within a year. High portfolio turnover may indicate nimbleness and profit-taking under an investment policy, but may also generate higher trading fees. High turnover, in any given year, is not so advisable for US citizens, US green card holders, and US tax residents due to the much higher tax liabilities generated for short-term versus long-term capital gains.

Asset Allocation. Balanced Parameters must be stated on every fact sheet and investment policy prospectus. A balanced fund has to be just that, balanced around the industry standard of 60% stocks, 40% bonds. Deviations from that standard may mean higher profits to the investor/client but can wreak absolute havoc on an overall portfolio designed for conservative risk management. Style drift analysis is another technique used to research whether a fund is sticking to its balanced fund mandate.

Fund Manager Tenure. Similar to comparing a new pilot versus an experienced career pilot, the longevity of a portfolio manager is important, as is fund manager turnover. A steady investment hand on management is a considered a higher rating component.

Returns and Performance. A one year return on any investment is important, but if you are in it for the long haul, annualised returns and cumulative returns since the beginning launch of a mutual fund are equally, if not more important. A one-year high return is meaningless, if all prior years were absolutely dismal! I have seen those more than I care to count.

Fees and Returns. Are the Returns Calculated on Gross Performance or after deducting all Fees to manage the fund. This is a very, very important criterion. A fund can spout a great gross of fee performance, but without subtracting the fees spent to get to that point, the performance number is not really factual. Make sure you if you know what the fee-adjusted rate of return is for your funds.

Additionally, management fees stated may or may not include custody fees for the fund, or underlying fees (when a fund contains underlying funds). Mutual fund fact sheets are not uniformly presented no matter where one looks, unfortunately.

Risk statistics. There a number of statistical mathematical components in risk evaluation. Standard deviation is the most commonly used as a means to quantify how much the fund returns vary around the average return (mean) for that type of fund and its index. Large variations indicate more volatility and risk. The standard deviation of the S&P 500 index over 15 years is around 15 per cent, while the short-term US Treasury standard deviation is around 2.5 per cent. Balance funds report out around 5 per cent to 7 per cent. You would be questioning your financial person immediately if suddenly, the deviation was much higher, wouldn’t you?

So, these criteria are not all inclusive, there are many more. Do your own research, work with a financial representative, and get started investing gradually. Good luck.

The remaining mutual funds series and links to the actual fund companies can be found in weeks January 17, January 24, and March 28, 2015 by visiting The Royal Gazette website (www.royalgazette.com) and typing in Martha Myron.

Martha Harris Myron CPA PFS CFP JSM, Masters of Law: International Tax and Financial Services. Appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. The Pondstraddler* Life™ Consultancy provides cross border financial planning for internationally mobile individuals and their businesses residing, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle. Specific focus on residents of Bermuda, the premier international finance centre. Contact: martha@pondstraddler.com