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Educational Programming Video

The Value Line Mutual Fund Survey
Program 6: Mutual Fund Research

In earlier sessions, we discussed how you can keep track of and measure the performance of mutual funds. This session will focus on our own mutual fund research efforts so that you have a better understanding of the depth of our services.

In total, Value Line has nearly 100 research analysts, encompassing stocks, convertible securities, options, special situations, and mutual funds. Each of these areas has its own Value Line product offering, and each adheres to the same rigorous standards as the over 70-year-old Value Line Investment Survey. Namely independent, thorough, objective research that provides the individual investor everything he or she needs to make an informed investment decision.

Of the 100 analysts, 16 are dedicated solely to mutual fund research. Every one of our Mutual Fund analysts has been thoroughly trained by senior members of our staff. Even if they have a financial background, we train them to analyze a mutual fund the Value Line way. It's not just a matter of understanding what a mutual fund is, it's a matter of understanding how Value Line views mutual funds.

Each analyst is assigned 10 funds per issue. They are responsible for every aspect of those 10 funds, from the performance statistics to the address of the fund family--everything is scrutinized.

But the question remains, "How do Value Line Mutual Fund analysts research a mutual fund?"

The answer is that we treat a fund the same way you would. We look at a fund with the same scrutiny as an individual investor putting his or her hard-earned money in the hands of that fund's manager.

First we obtain and review the fund's own reports and marketing material. We compare these reports to past information to make sure nothing has changed at the fund. Because we have a history on each fund we cover, we can check for changes over longer periods of time than an individual investor, a clear advantage for our subscribers. Any changes are noted, and, if significant, are brought to the attention of our readers.

Next, we examine the fund's performance record. The most recent information is the most relevant to ongoing and new investors, so this is where we focus much of our attention. After all, past performance is no guarantee of future returns, so it is more important to know what is going on now than what happened two years ago.

We start at the fund level, examining how the fund has performed on an absolute basis, as well as relative to other funds that invest in a similar fashion. After assessing how the fund has performed, we take a look at what caused that performance. The holdings are examined to find out what sectors have performed well, and which have not. After looking at sectors and the portfolio's weightings in those sectors, we dig even deeper and look at the individual holdings in each sector. Here we are trying to pick out individual winners and losers that help to illustrate the driving forces behind the fund's overall performance. Once we have taken this in-depth look at the fund's portfolio, we are ready to talk with the fund's management.

Talking to fund managers is both the most difficult and most enjoyable part of the analysts' work. We start off by asking the manager to review the general investing backdrop of the last three to six months, and then focus more on individual portfolio performance. The biggest question is always, "Why?" Although knowing about changes is important, the reason that these changes were made tends to be more insightful. This allows the analyst, and our readers, to get a better grasp on how the fund is really managed.

The last step of the process is to write the comment. The comment is broken down into three parts, Recent Developments and Strategies, Management Style, and Conclusion. In the first section we give readers an insight into what is going on right now. This section answers questions such as, "What areas have been a drag on performance?" "What sectors have helped?" "What area is management favoring right now?" What stocks are on his or her hot list?" All the new and up to date information that is needed to make an assessment of the funds current position.

The second section, Management Style, is an overview of the fund's longer reaching strategies. Here you learn if the fund is a value fund or growth fund. Does management use a top-down, bottom-up, or mixed approach to stock selection. You basically learn what to expect from management on an ongoing basis.

Lastly, the conclusion sums up the fund's performance history and provides a recommendation. All funds are not good for all investors, so our recommendations are based on an asset allocation theme, suggesting what type of investor may be interested in a specific fund.

Although there is far more that goes into the analysis of a mutual fund, you should now have a broad idea of our framework, which, ultimately, will help put our reports to work for you!

Factual material is obtained from sources believed to be reliable, but the publisher is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice. © 2014 Value Line Publishing, Inc. RIGHTS OF REPRODUCTION AND DISTRIBUTION ARE RESERVED TO THE PUBLISHER. The Publisher does not give investment advice or act as an investment adviser. Value Line, Inc., its subsidiaries, its parent corporation and its subsidiaries, and their officers, directors or employees as well as certain investment companies or investment advisory accounts for which Value Line, Inc. acts as investment advisor, may own stocks that are mentioned on this Value Line Web site.