How the score is built
The Dragon Score rates a mutual fund, ETF, or index fund on five weighted dimensions and rolls them into one number from 1 to 100. The weights: historical performance 25%, risk-adjusted returns 25%, expense efficiency 20%, manager tenure stability 15%, and peer-group ranking 15%. Each dimension is scored, multiplied by its weight, and added. The five parts sit under every score, so you can see where the total came from.
Worked through with Example fund A
Example fund A, a fictional US large-cap index ETF, scores 78 on performance, 76 on risk-adjusted returns, 48 on expense efficiency, 80 on manager tenure, and 70 on peer rank. Weighted, that is 19.5 plus 19 plus 9.6 plus 12 plus 10.5, or 70.6, shown as 71.
Fees cost it the most: expense efficiency gives up 10.4 of its 20 points, more than any other dimension. That is the kind of reading the score is for.
It does not forecast
Most of what the score measures is history: how the fund has performed, how rough the ride was, how long its managers have stayed, how it ranked against its peers. A high score says the fund has done well on those measures. It does not say the fund will. Past performance is not indicative of future results.
It does not know you
The score rates the fund, not the fit. It does not know your goals, your time horizon, how large a fall you can sit through, or when you will need the money. A fund with a high score can still be the wrong fund for you.
It does not see the rest of your portfolio
A fund can score well and still duplicate what you already own. Two high-scoring large-cap funds may hold much of the same money. For that question, use the portfolio view, which maps overlap and concentration across the holdings you enter.
It does not count your taxes
The score does not know whether you hold a fund in a taxable account or a retirement account, what switching would cost you in taxes, or how much a fund tends to distribute. For some investors those matter more than a few points of score.
It does not judge the thinking
The score reads results, cost, and tenure. It does not read a manager's letters to shareholders or judge whether a strategy makes sense for the markets ahead. Two funds with the same score can have got there in very different ways, which is why the five parts are shown and not only the total.
The same number is not the same fund
Peer-group ranking only means something inside the peer group. A bond fund ranked against bond funds and an emerging markets fund ranked against its own peers can post the same score and carry very different risks.
It is a reading as of a date
Scores use data up to a date. A manager can leave, a fee can change, or a fund can change strategy after it. The score follows the data as it updates, not the news.
What to do with it
Compare scores between funds that do the same job. Use the score to shortlist and to ask better questions: look at the five parts, not only the total, then read the fund's prospectus before you decide. IQ Dragon is not an adviser, and a score is not a recommendation to buy, sell, or hold.
Terms in this note
- Composite
- The weighted sum of the five dimension scores, shown rounded from 1 to 100.
- Peer group
- The funds that do the same job, against which a fund is ranked.
- Time horizon
- How long until you expect to need the money.
Every example in this note is hypothetical or fictional. Past performance is not indicative of future results. IQ Dragon is not a registered investment adviser, broker-dealer, or financial planner. Informational and educational, not personalized advice.