Now that we have seen how to build a mutual fund screen, let’s get a more nuanced understanding with 3 different examples.
We will begin with screening for funds with low drawdowns.
Now while we did place emphasis on this filter in the previous article, if you remember it was the last filter in our sequence. And we have already seen, that when the sequence changes, everything changes. Let’s see.
First, we’ll identify funds with low drawdowns.
In this case, we will find low drawdown funds from the entire universe of funds. In our example, we will select the bottom 30%.
As we can see, after applying the filter, we are left with a total of 429 Mutual Funds. The box in red shows the drawdown percentages. (We won’t go into detail about how to set the rule, as it’s already covered in the previous article.)
Now that we have funds with low drawdown, we will want to further filter it to ones that are least volatile. Since mutual funds are mostly held for a longer period, we will select 3Y Volatility and again select the bottom 30%.
As we can see, we now have only 72 mutual funds.
Next, we want to now focus on mutual funds that have beaten the benchmark index consistently. So we will select Alpha 3Y and choose the Top 30%.
Finally, we want to ensure that the funds don’t just generate benchmark-beating returns, but also give a better reward for every unit of risk taken.
For that, we will select the Sharpe ratio and choose only the Top 10% of funds in it. Let’s see what happens after the final rule.
As you can see, all the rules are added. We now have our filtered list of mutual funds ready.
Let’s look at another example.
