Financial Services Education and Financial Services Training
Attaining a Financial Services Education is a precursor to a successful financial services career. Getting such financial services training will include valuable analysis of current events or institutions in the industry, such as the Morningstar Rating system.
The Morningstar (star) Rating system is comprised of two parts: longevity and risk-adjusted returns. Funds with 10-year histories are weighted (based on risk-adjusted returns described below): 50% for the entire 10-year period, 30% for the most recent 5-year period and 20% for the most recent 3-year period. For funds with 5-year histories: 60% for the 5-year period and 40% for the most recent 3-years. If a fund only has three years of returns, the entire 3-year period is given a weighting of 100%. In the case of funds with 5- or 10-year track records, the most recent periods are ?counted? 2-3 times. The other component (risk-adjusted returns) is calculated by taking a fund?s Morningstar Risk measurement and subtracting it from the fund?s Morningstar Return score.
Some portfolio managers or academics have been critical of Morningstar performance measurements. Averse arguments state that Morningstar star ratings are of limited value when selecting individual funds or constructing an entire portfolio.
Another study concluded:
? Just one month?s or one year?s returns can significantly change a funds rating ? Funds with 10+ year track records do a better job of maintaining their star rating than a fund that has only been around for three years ? Ratings do a good job in predicting poor fund performance (but not in predicting excellent performance) ? Future performance ends up being about the same whether the fund has a current rating of three, four or five stars (source: Zweig, 2000).
A financial services education can also introduce you to valuable strategic investment strategies, and insightful case studies. Such case studies will provide examples to apply academic knowledge to real-life market situations. The following case study details certain attributes of US Equity Funds and an analysis of market performance.
Even though the U.S. stock market is mostly comprised of small cap stocks, most mutual funds are large cap. Of the 2,600 domestic equity funds at the end of 2009, 51% were large cap, 26% mid cap and 23% small cap. For any given year, ~35% of domestic equity funds have a negative return; about half of all U.S. stocks experience a negative return. Most U.S. stock funds have ?herd like? performance. The table below shows the percentage of U.S. stocks and U.S. equity funds whose returns have been negative (source: Financial Planning, April 2010).
U.S. Stocks and U.S. Equity Funds With Negative Returns
In 2000, 60% of U.S. Stocks and 54% of U.S. Equity Funds had negative returns. In 2001 just 47% of stocks were negative but 77% of equity funds were negative. In 2002 63% of stocks declined and nearly all equity funds declined - 97%! In 2003 things began to improve; 15% of stocks were down and just .3% of equity funds had negative returns. In 2004 33% of stocks fell and 2% of equity funds fell. In 2005 over half of stocks (52%) had negative returns and 6% of equity funds were negative. Things improved again in 2006 with just 39% of stocks being negative and 2% of equity funds negative. 2007 started a downward trend - 89% of stocks had negative returns and 27% of equity funds fell; then in 2008 we saw 89% of stock fall and 99.8% of equity funds fall. Finally in 2009 the market began to go up again - 39% of stocks were down and just .4% of equity funds were down.
Financial services training in an academic setting will provide you with the practical knowledge and foundation to pursue a financial services career head on, with confidence and understanding.
Cory Bowman is Director of Ops at the Institute of Business Finance. IBF has helped thousands of members of the financial services industry attain designations. For more information about financial services education or financial services training visit http://www.icfs.com
