One of advisors’ main duties is also one of their most challenging: to sift through a seemingly endless universe of funds and pick the ones that will outperform relative to their peers. Even once advisors have identified what they want to buy, they often have dozens of fund options to choose from, all seeming similar without deep research. Luckily, Nasdaq Dorsey Wright has a solution to help advisors choose the highest performing fund, and do so very efficiently. They have a proven methodology that allows advisors to systematically find consistently higher returns for their clients by using Fund Scores.
Nasdaq Dorsey Wright takes many Factors into account when creating fund scores. By using trend-based measures with price and various moving averages, market relative strength measures so as to perform other segments, and a peer metric to select the best funds in the category, Nasdaq Dorsey Wright’s approach has led to consistent outperformance. Every fund has a rating on a scale of 0-6 with 6.0 being the highest possible rating. To analyze the real-world efficacy of fund scores they looked at the historical performance at six different tiers (6.0-5.0, 5.0-4.0, etc.) to see how well they predicted future excess returns. Funds were rebalanced every month to account for changing scores, and there were consistently high returns for the higher rated categories. From 1992 to 2020 the 5.0 and higher had a CAGR of 11.76% whereas the 4-5’s had a 9.06% return. The fund scores were directly correlated with the returns, and even more impressive was how little additional risk was prevalent. Max drawdowns, standard deviations, and Sharpe ratios also all improved across the higher scores.
In summary, Nasdaq Dorsey Wright’s Fund Score is a highly proven, efficient, and easy-to-use tool to find outperformance for your clients.