Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

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F150HD
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Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by F150HD » Sat Nov 09, 2019 11:26 am

I don't use M* as much anymore, but noticed at the bottom of each page there's a percentile rank for each fund.

Is this percentile rank in regard to after tax total return? (after fund cost, 12b-1 fees etc)

It doesn't shine that great a light on some funds I was glancing at.....i.e. VBAIX I have access to in a tax deferred account though at the end of 2018 it was in the 11th percentile out of 775 like funds. That doesn't sound that great. :|

I have access to VIIIX in tax deferred and currently use it, though it seems to be lingering around the bottom quartile the past X years.

There's clearly more variables at hand then percentile rank when selecting funds to invest in, but, I found this interesting.

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by JoMoney » Sat Nov 09, 2019 11:34 am

F150HD wrote:
Sat Nov 09, 2019 11:26 am
...I have access to VIIIX in tax deferred and currently use it, though it seems to be lingering around the bottom quartile the past X years...
I think you're misreading it.
It's been in the TOP quartile the past several years... look at the little shaded picture in the "Quartile Rank" line.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by sycamore » Sat Nov 09, 2019 11:36 am

11th percentile in Morningstar terms is actually good. Notice how the percentiile ranking is good when the +/- category value is high. Top quartile is 1-25.

As usual, Vanguard funds do pretty well (low fees being a prime reason).

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by JAZZISCOOL » Sat Nov 09, 2019 11:53 am

JoMoney wrote:
Sat Nov 09, 2019 11:34 am
F150HD wrote:
Sat Nov 09, 2019 11:26 am
...I have access to VIIIX in tax deferred and currently use it, though it seems to be lingering around the bottom quartile the past X years...
I think you're misreading it.
It's been in the TOP quartile the past several years... look at the little shaded picture in the "Quartile Rank" line.
This is correct. Lower number = higher rank in the universe. :happy

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Post by Taylor Larimore » Sat Nov 09, 2019 11:54 am

Bogleheads:

One of the reasons I selected Vanguard Total Stock Market Index Fund Admiral (VTSAX) for the U.S. stock allocation in The Three-Fund Portfolio is the fact that it has never ranked below average in its category returns. I believe this is one of the reasons VTSAX is now the largest mutual fund in the world!

Best wishes.
Taylor
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by JoMoney » Sat Nov 09, 2019 12:08 pm

Something else to note, beyond just the annual ranking, is the consistency of the 'above average' ranking over time.
It adds up to a longer-term top ranking that isn't as apparent when looking at it year to year.
The SPIVA Scorecard shows the S&P outperformed 64.49% of all Large-Cap funds in 2018, and the annual rankings typically put it somewhere above 50% to 85% of the funds year to year... but over the 15 year period ending in 2018 it outperformed 91.62% of the funds. The consistent above 'average' ranking adds up over time.
https://us.spindices.com/documents/spiv ... d-2018.pdf
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by F150HD » Sat Nov 09, 2019 1:07 pm

JoMoney wrote:
Sat Nov 09, 2019 11:34 am
F150HD wrote:
Sat Nov 09, 2019 11:26 am
...I have access to VIIIX in tax deferred and currently use it, though it seems to be lingering around the bottom quartile the past X years...
I think you're misreading it.
It's been in the TOP quartile the past several years... look at the little shaded picture in the "Quartile Rank" line.
Ah, no? Unless M* defines percentile rank differently then the mathematical definition of percentile rank (?)

....if a fund is in say the 25th percentile that means its 'better than' 25% of the funds its being compared to which means 75% of the funds in the sample are better then it.
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by F150HD » Sat Nov 09, 2019 1:10 pm

JAZZISCOOL wrote:
Sat Nov 09, 2019 11:53 am
JoMoney wrote:
Sat Nov 09, 2019 11:34 am
F150HD wrote:
Sat Nov 09, 2019 11:26 am
...I have access to VIIIX in tax deferred and currently use it, though it seems to be lingering around the bottom quartile the past X years...
I think you're misreading it.
It's been in the TOP quartile the past several years... look at the little shaded picture in the "Quartile Rank" line.
This is correct. Lower number = higher rank in the universe. :happy
a lower percentile rank would mean its worse, not better. Scoring in the 25th percentile on the ACT (for example) means 75% of the students taking the exam did better then you did.
Long is the way and hard, that out of Hell leads up to light.

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by JAZZISCOOL » Sat Nov 09, 2019 1:13 pm

F150HD wrote:
Sat Nov 09, 2019 1:10 pm
JAZZISCOOL wrote:
Sat Nov 09, 2019 11:53 am
JoMoney wrote:
Sat Nov 09, 2019 11:34 am
F150HD wrote:
Sat Nov 09, 2019 11:26 am
...I have access to VIIIX in tax deferred and currently use it, though it seems to be lingering around the bottom quartile the past X years...
I think you're misreading it.
It's been in the TOP quartile the past several years... look at the little shaded picture in the "Quartile Rank" line.
This is correct. Lower number = higher rank in the universe. :happy
a lower percentile rank would mean its worse, not better. Scoring in the 25th percentile on the ACT (for example) means 75% of the students taking the exam did better then you did.
See this by JoMoney (look at the shaded boxes in the charts you pasted in "quartile rank" boxes):

Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc
Post by JoMoney » Sat Nov 09, 2019 9:34 am

F150HD wrote: ↑Sat Nov 09, 2019 9:26 am
...I have access to VIIIX in tax deferred and currently use it, though it seems to be lingering around the bottom quartile the past X years...
I think you're misreading it.
It's been in the TOP quartile the past several years... look at the little shaded picture in the "Quartile Rank" line.

Also see Taylor Larimore's post above.

Further, Schwab rankings confirm this. Under your interpretation of these charts, there would likely be a massive outflow from passive to active (the opposite has been happening). :beer
Last edited by JAZZISCOOL on Sat Nov 09, 2019 1:24 pm, edited 2 times in total.

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by JoMoney » Sat Nov 09, 2019 1:21 pm

https://admainnew.morningstar.com/webhe ... egory.html
Total Return Percentile Rank, Morningstar Category
Percentile rank is a standardized way of ranking items within a peer group, in this case, funds with the same Morningstar category. The observation with the largest numerical value is ranked one; the observation with the smallest numerical value is ranked 100. The remaining observations are placed equal distance from one another on the rating scale. Note that lower percentile ranks are generally more favorable for returns (high returns), while higher percentile ranks are generally more favorable for risk measures (low risk).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by TropikThunder » Sat Nov 09, 2019 1:23 pm

All of you have part of the correct story: VIIIX consistently ranks in the top quartile, and M* is using the term “percentile” wrong. No one else (to my knowledge) is using percentile the way M* is.
For example, a test score that is greater than 75% of the scores of people taking the test is said to be at the 75th percentile, where 75 is the percentile rank.
https://en.m.wikipedia.org/wiki/Percentile_rank

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by F150HD » Sat Nov 09, 2019 1:25 pm

TropikThunder wrote:
Sat Nov 09, 2019 1:23 pm
All of you have part of the correct story: VIIIX consistently ranks in the top quartile, and M* is using the term “percentile” wrong. No one else (to my knowledge) is using percentile the way M* is.
For example, a test score that is greater than 75% of the scores of people taking the test is said to be at the 75th percentile, where 75 is the percentile rank.
https://en.m.wikipedia.org/wiki/Percentile_rank
Thank you! :thumbsup
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by JAZZISCOOL » Sat Nov 09, 2019 1:26 pm

TropikThunder wrote:
Sat Nov 09, 2019 1:23 pm
All of you have part of the correct story: VIIIX consistently ranks in the top quartile, and M* is using the term “percentile” wrong. No one else (to my knowledge) is using percentile the way M* is.
For example, a test score that is greater than 75% of the scores of people taking the test is said to be at the 75th percentile, where 75 is the percentile rank.
https://en.m.wikipedia.org/wiki/Percentile_rank
FWIW: The institutional investment industry is generally consistent with the Morningstar convention in terms of universe rankings (even if it is the opposite of other fields.)

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by Kenkat » Sat Nov 09, 2019 1:27 pm

Yes, Morningstar would have been better off just calling it “rank”, which is what I think they are really going for.

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by F150HD » Sat Nov 09, 2019 1:35 pm

JoMoney wrote:
Sat Nov 09, 2019 1:21 pm
https://admainnew.morningstar.com/webhe ... egory.html
Total Return Percentile Rank, Morningstar Category
Percentile rank is a standardized way of ranking items within a peer group, in this case, funds with the same Morningstar category. The observation with the largest numerical value is ranked one; the observation with the smallest numerical value is ranked 100. The remaining observations are placed equal distance from one another on the rating scale. Note that lower percentile ranks are generally more favorable for returns (high returns), while higher percentile ranks are generally more favorable for risk measures (low risk).
M* must just do this backwards (at least from my perspective), I find it a bit confusing! :greedy
Taylor Larimore wrote:
Sat Nov 09, 2019 11:54 am
Bogleheads:

One of the reasons I selected Vanguard Total Stock Market Index Fund Admiral (VTSAX) for the U.S. stock allocation in The Three-Fund Portfolio is the fact that it has never ranked below average in its category returns.
Thread was not arguing 'against' using VTSAX, as I invest in it! I think the confusion (to me) is in how M* is using the phrase percentile rank. Well, to me at least. Thanks! :beer
Kenkat wrote:
Sat Nov 09, 2019 1:27 pm
Yes, Morningstar would have been better off just calling it “rank”, which is what I think they are really going for.
+1
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by JAZZISCOOL » Sat Nov 09, 2019 2:14 pm

Kenkat wrote:
Sat Nov 09, 2019 1:27 pm
Yes, Morningstar would have been better off just calling it “rank”, which is what I think they are really going for.
Yes, it can be confusing. I actually like quartile rankings vs. percentiles since it is more intuitive to consider 4 categories: top, above median, below median and bottom. :beer

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by Scooter57 » Sat Nov 09, 2019 4:14 pm

Ranking high in return in one given year may just reflect that a fund too more risks and those risks paid off. Vanguard funds tend to avoid the kinds of risk that make a fund #1 one year an at the bottom of the pile the next.

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by Ricchan » Sat Nov 09, 2019 7:40 pm

M*'s use of the term "Percentile Rank" was confusing to me as well. I initially had the same thought as the OP when I first saw those numbers, until I looked at the "+/- Category" and "+/- Index" rows and noticed that whenever a fund did better than the Category or Index, it was always below 50 Percentile Rank, and whenever it did worse than the Category / Index, it was always above 50 Percentile Rank.

It took a while for me to force myself to get used to it, and even now if I haven't looked at M* numbers in a while and suddenly see them, it takes a second for me to remind myself how they work. It's like being driven around on the left side of the road whenever I'm in the UK.

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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by jeffyscott » Sun Nov 10, 2019 7:37 am

F150HD wrote:
Sat Nov 09, 2019 11:26 am
I don't use M* as much anymore, but noticed at the bottom of each page there's a percentile rank for each fund.

Is this percentile rank in regard to after tax total return? (after fund cost, 12b-1 fees etc)
The returns and ranking of same are not after tax.

In looking at this, I would pay more attention to the longer term rankings in the trailing returns table, rather than calendar year results. For example, the 5, 10, and 15 year columns for VBAIX:
Image
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by F150HD » Sun Nov 10, 2019 10:32 am

jeffyscott wrote:
Sun Nov 10, 2019 7:37 am
F150HD wrote:
Sat Nov 09, 2019 11:26 am
I don't use M* as much anymore, but noticed at the bottom of each page there's a percentile rank for each fund.

Is this percentile rank in regard to after tax total return? (after fund cost, 12b-1 fees etc)
The returns and ranking of same are not after tax.

In looking at this, I would pay more attention to the longer term rankings in the trailing returns table, rather than calendar year results. For example, the 5, 10, and 15 year columns for VBAIX:
[/img]
Thanks. I always look at longer return windows for sure, as small windows can inflate a return average for sure.

The percentile rank issue (discussed in detail above) is now clarified.

If M* is using returns before cost/tax, this would only improve the position of VG funds relative to peers due to lower ERs, that was one reason I asked. Thanks.
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by jeffyscott » Sun Nov 10, 2019 11:16 am

It's pre-tax, but after fund expenses. Reported returns are always net of fund expenses for no load mutual funds.
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Re: Morningstar percentile rank - VTSAX, VBAIX, VIIIX etc

Post by grabiner » Thu Nov 14, 2019 11:01 pm

jeffyscott wrote:
Sun Nov 10, 2019 7:37 am
In looking at this, I would pay more attention to the longer term rankings in the trailing returns table, rather than calendar year results. For example, the 5, 10, and 15 year columns for VBAIX:
Image
This is particularly useful for an index fund, as it reduces the effect of the difference between the index and the category. In the 2008 financial crisis, Treasury bonds rose and corporate bonds fell; in the 2009 recovery, corporate bonds caught back up. Thus a fund such as Balanced Index or Total Bond Market Index which holds more Treasury bonds than most funds' bond holdings should be expected to outperform the category in 2008 and underperform in 2009. In the longer term, this type of randomness goes away, and the advantage of low costs becomes more apparent.
Wiki David Grabiner

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