With the recent, and albeit brief, sharp market decline and concerns about the possibility that even sharper and longer declines may lie ahead, we thought it useful to republish what we wrote about the 2022 decline and how our Retail Investment Tracking Application℠ (“RITA℠”) can be used to better evaluate and select mutual funds and ETFs in those stressful circumstances.

What follows is a reprint of a piece written during the sharp market decline in 2022 and before the launch of RITA℠ - but while using the same decision-assistance technology that powers it.

It’s as valid and timely today as it was when written. We hope you find it helpful.

Sharply declining markets present a unique challenge in the selection of mutual funds and ETFs.

Obviously, we are looking for mutual funds and ETF's that have been the “best” over time at producing the composite investment effect we desire from any asset class. But that longer term performance may be “out of sync” with rapidly changing market conditions.

Those mutual funds and ETFs that have performed well in a generally rising market, may not be well positioned to perform equally well in a sharply declining market.

So, can RITA℠ help in our comparative analysis of mutual funds and ETFs under such conditions?

“YES,” and here's how.

If you select and weight the performance metrics, as you normally would, to identify those mutual funds and ETFs that have been best over extended periods of time in producing the composite investment effect you want, you can simply add the 3-Month Return factor to your analysis.

We're not suggesting that you put any weight on 3-Month Return (after all, it is a very short period and virtually anything can happen in a single quarter).

However, even without weighting this factor, doing so provides valuable insight into which mutual funds / ETFs are either better positioned to weather the new down-market conditions or that have better and more rapidly adapted to such conditions, or both.

For example, below is a 2022 comparative analysis of 442 Large Cap Value mutual funds and ETFs, using RITA℠ technology.

One of the ten S&P 500 Value ETFs was selected for scoring and ranking and, as you can see, it ranked 118.

Notice that 3-Month and YTD Returns were added to the analysis as non-weighted factors.

Out of the top 15, only two had positive YTD Returns (using 5/31/2022 data) and only two had positive 3-Month Returns, while the S&P 500 Value ETF we had selected lost 356 and 49 bps, respectively for those periods (versus the gains of 409 and 388 bps with #1).

#1 also outperformed in both return and volatility in every period.

Why? What were the 1st, 2nd, and 3rd ranked funds doing differently?

With the RITA℠ technology we were able to perform this analysis in mere minutes, enabling us to focus our qualitative due diligence (always a necessary “next step”) in this case on only the top three . . . a huge due diligence time saver.

In general, those mutual funds and ETF's that tend to perform well in sharply declining markets often do not do well in rising markets because of their risk averse or ultra conservative strategies.

However, in this example, we selected and weighted the performance parameters as we might normally weight them in a rising market.

Interestingly, you will see that the top scoring mutual funds and ETFs have significantly outperformed the S&P 500 Value ETF over extended periods of time (in rising market conditions) as well as in the most recent 3-Month and YTD periods of sharp market declines.

What you decide to do next with important and newly available information like this is entirely up to you, but the important point is this – with the RITA℠, you can now have this information at your fingertips in mere moments.

Valuable?

We certainly think so and believe you will too!