The Forbes Honor Roll - a history of failure!

Forbes Magazine’s annual honor roll of mutual funds is met with great anticipation by much of the investing public.  After all, the fund research from such a prestigious publication should provide investors with a great opportunity to assemble a most prosperous portfolio; but, is that how it turned out?  Did Forbes Magazine succeed in providing investors with an outstanding tool with which to choose mutual funds?  Answer in a word:  NO!

From 1990, Forbes placed 292 funds on its most prestigious annual Honor Roll, with annual qualified listings of 10 to 20 funds.  Over the years, the honor roll actually consisted of only 104 funds, with many of the funds making repeat appearances.   Surprisingly, it would be difficult to build a properly allocated portfolio out of the honor roll funds, as they represent only a few of the different investment categories.

 The simple mathematical odds of a fund achieving a certain performance quartile are 25/25/25/25; however,

• How often did an honor roll fund annually find itself in either the top or bottom quartile of its peer group?
• How did the honor roll funds perform during the three years after their inclusion on the list?
• How did these same funds make out five years after inclusion on Forbes list?

While the Forbes Honor Roll did produce some stellar fund selections, especially the 1996 list, Forbes Magazine’s ability to call out top fund performance in advance, either short-term or long-term, was not much better than that of a coin toss!

Over the 23 years studied, Forbes had 1,491 opportunities to demonstrate its fund selection prowess.  The annual in-category performance of its recommendations is as follows:

    1st Quartile - 27%    2nd Quartile - 24%    3rd Quartile - 22%    4th Quartile - 27%

That’s a top half/bottom half ratio of 51/49, which, once again, has all the success of a coin flip!

•  Three years after inclusion on the list, 27% of the honorees made it to the top quartile of their category, while 25% landed at the bottom.  A small majority (54%) finished in the top half and a large minority (46%) finished in the bottom half.
• Five years after inclusion on the list, 27% of the honorees made it to the top quartile of their category, while 26% landed at the bottom.  The 5-year post performance produced a dismal top half/bottom half ratio of 50/50.

 The annual charts follow: