One of the most important questions investors and retirement plan sponsors should ask is how to decide which funds to select.  With tens of thousands of choices of mutual funds and exchange traded funds, and numerous measurement criteria, many people get discouraged.  Inaction is arguably as damaging as focusing on incomplete information, as both can lead to serious consequences for investors.

There is no one criteria universally accepted for making investment choices.  One could argue, though, that chasing the latest asset class with terrific returns, or a fund with the best results in a category are incomplete ways to select your investments.

A resource I have found to be helpful comes from Fiduciary 360, and it’s called the Fiduciary ScoreTM. 

While you don’t have to have a Master’s degree in finance to understand it, the score evaluates a fund using data available to the public, taking into account eleven rigorous components.  The rating system comes from a part of the Prudent Practices for Investment Fiduciaries  and helps quickly identify a short list of funds or ETFs that merit further research in your selection process, or highlights funds that contain potential deficiencies.

The Fiduciary ScoreTM considers the following eleven characteristics:

1. 1.   Inception Date: The investment must have at least a 3 year track history.
   

2. 2.   Manager Tenure: The investment manager must have at least a 2 year track history.
   

3. 3.   Assets: The investment must have at least 75 million under management.
   

4. 4.   Composition: The investment's allocation to its primary asset class should be greater than or equal to 80%
   

5. 5.   Style: The investment's current style box should match the peer group. 
   

6. 6.   Prospectus Net Expense Ratio: The investment must place in the top 75% of its peer group.
   

7. 7.   Alpha: The investment must place in the top 50% of its peer group.
   

8. 8.   Sharpe: The investment must place in the top 50% of its peer group.
   

9. 9.   1 Year Return: The investment must place in the top 50% of its peer group.
   

10. 10. 3 Year Return: The investment must place in the top 50% of its peer group.
    

11. 11. 5 Year Return: The investment must place in the top 50% of its peer group.
    

While the Fiduciary ScoreTM is a great start, the criteria we may use for your investments may be more stringent, or include other factors not considered above.  Managing  your investments prudently can be facilitated using this methodology as a part of the process to develop an allocation that meets your unique needs and objectives.