Mutual Fund Due Diligence Assignment

    What do you need to include in your paper?

    All papers in this class are single-spaced. (2-point deduction if this rule is not followed)

    All papers in this class should be professional in appearance as if you would be willing to show it to your boss or to a client.

    This paper should be 1-2 pages in MS Word format only.

    Make sure that you put your name in the document header as I do not count document header information toward length requirements.

    You need to include a labeled section for each numbered item (1-9) above. Detailed discussions are required for all topics.

    You also need a section labeled “Learning” in which you need to tell me what you learned from this assignment.
    Do not use target dated funds (like the Fidelity 2055 Fund), long/short funds, or managed futures funds for this project.

    Navigate to

    At some point in the process, you will be asked to sign up for an account. You DO NOT NEED PAID ACCESS TO COMPLETE THIS ASSIGNMENT. However, you will need to sign up for the free access account. Select the “Menu” expander on the right of the screen, which will reveal a Tools submenu. Choose the “Basic Fund Screener” option and check the box next to the 5 stars. Use any of the other search features on the page that interest you. I recommend selecting, under the “Cost and Purchase” section, the option for “no-load funds only.” Once you have made some screening choices, then select “Show Results” at the bottom of the page. I do not expect you to be an expert mutual fund screener…just play with it and see what you can learn through exploration. You may need to adjust your screener multiple times before you fine-tune it as desired…the important component is to ONLY USE 5 STAR FUNDS. You need to pick a long-only actively managed equity fund (i.e., no index funds, no bond funds, no target dated funds, no long-short funds, etc.) Do not just relay data… you need to interpret it if you want a good grade. Assume that you are buying this fund in a taxable account.

    Now, on the pull-down menu next to View, select Performance. You can sort these 5-Star funds by clicking on their column heading, such as the 1-Year Return, and the funds will re-sort in rank order. Look for consistency across time periods. This is one way to find a list of funds that may deserve further attention. Pick one fund to analyze and pay special attention to all of the following:

    Performance: Current and Trend (HINT: check the top of the Performance page…Against what should you compare returns?) Build a table below your discussion of this topic with your fund and your comparison points in the rows (horizontally) and the time periods of consideration in the columns (vertically). Your discussion should reference this table.

    Top Holdings Risk: Are there any apparent risks in the top holdings? (HINT: Look on the “Portfolio” page… focus on “concentration” risk… search the textbook for this keyword)

    Sector Weightings: (HINT: Look on the “Portfolio” page). For your fund relative to its benchmark. This is a test of active share. Build a table below your discussion of this topic with your fund’s exposure, its benchmark’s exposure, and your calculated “Active Share” in the rows (horizontally) and the various sectors in the columns (vertically). Your discussion should reference this table.

    Style Map consistency: (HINT: Look on the “Portfolio” page) What can you tell about your fund’s portfolio? Is there any drift?

    Risk & Return vs. the category: (HINT: Look at the top left of the Risk page). Morningstar gives you an easy button…

    Fund Management: (HINT: Look on the “People” page). What can you discern from considering the fund manager’s tenure, the number of fund managers, the educational backgrounds of the managers, and any other funds that the managers might oversee? Click each manager’s name for more details on the person. 

    Tax Scenario: (HINT: look on the “Price” tab). What is the tax scenario for your fund? Check out this link  (
    and this link (

    Expenses: (HINT: look on the “Price” tab). What does the expense picture look like? Make sure that you discuss every item presented in class, and be very specific.

    Capture Ratio: (HINT: Look at the top left of the Risk page). What trend do you see in upside capture, downside capture, and the capture ratio (
    for your fund? How does this compare with the industry? Focus on the three-year capture data, and be specific in your comments.

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