Category Quartiles^SM

Comparing Apples with Apples

We’ve all heard someone object to an unfair comparison by saying, “But you’re comparing apples with oranges!” In business, such non-relevant comparisons are made. Some are honest mistakes of inexperience; others are seemingly deliberate methods of persuasion.

Accurate, fair and relevant comparisons are absolutely essential in investing. For example, how would you react to someone saying, “The Dow went up 10% this month, but my short-term government bond fund increased by 0.3%”? This is a classic case of an apples and oranges comparison. If the intent was to boast about owning such a good investment, you should smile and try to change the subject, because the speaker in grossly uninformed.

Category Quartiles^SM mutual fund performance methodology

One of the valuable analytical tools developed by Money Matters is the Category Quartiles^SM methodology. Monthly, we compile hundreds of data points on mutual fund performance by investment category. We rank all funds within a category by performance, from the best to the worst. Data points include monthly, quarterly, year-to-date and annual total return percentages. Next, we break the funds into quartiles and record the performance range for each quartile. For example, the one month performance ranges for two investment categories are shown below.

Category Quartiles^SM methodology ranks investments by quartile within their respective categories in order to have a true “apples to apples”.

Question: 

American Funds-EuroPacific Growth Fund (AEGFX) had a total return of -0.46% for the month, is that good or bad?

Answer:    

Of course, it’s not good that the investment lost money. But, by reference to the chart we see it was one of the highest performing of all 750 Foreign Large Blend funds for the month.

Question: 

Baron Growth Fund (BGRFX) had a total return of 4.18% for the month. Isn’t that good?

Answer:    

It sounds like a nice return for one month. However, as seen from the chart above, performance was below average compared to all 693 Small Cap Growth funds.