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How to tell if a Lipper award winner is right for you Add to ...

Expect to see mutual fund companies brag about their Lipper awards in coming days, either through press releases or on their websites.

This doesn't mean investors should run out and blindly buy these funds.

Think of a winner as an investment idea requiring more research, because there are many reasons why it may not work out for you.

Because the Lipper funds undergo a computer-generated numbers test, some unusual funds can end up with the honour.

For example, Mackenzie Destination + 2020 won a Lipper award for one year in the 2020 target-date portfolio category. But this fund, which was designed to shift into conservative investments like bonds from equities as the target date nears, was forced to close at the end of 2008 after being open for less than a year.

"The Lipper fund award should be just one consideration" when choosing a investment, said Jeff Tjornehoj, head of research for the Americas at the Lipper unit of Thomson Reuters.

Here are some questions to ask when looking at a Lipper award winner.

1. How long has a manager been running the fund?

There are Lipper awards for one-, three-, five-and 10-years in many categories, but the same manager may not have run the fund for the whole time. Strong numbers by a manager in early years can help longer-term returns, but that person may no longer be around. Some firms, however, can pass on a certain investing culture to newer managers.

2. How much does the fund charge?

If you are a fee conscious investor, check out the management expense ratio of the winning fund and whether you can live with it. High fees can eat away at returns over time.

3. Is the fund appropriate for my portfolio?

A Lipper award winner may have caught your eye, but if you already have several investments in the category or sector, it may throw your asset allocation out of whack.

4. Is the winner in a region or sector likely to outperform?

A fund can be a winner, even if it is losing money. TD Japanese Index Investor Series was the winner over one, three and five years, but it has also been in the red during those times. It's not a surprise, given that the Japanese market has gone nowhere in two decades, but you might want to think twice before jumping into this one.

5. How many times has a fund been a winner?

Some funds are one-year award wonders, while others are repeat winners year after year. There are never guarantees, but repeat winners can provide more peace of mind.

 

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