How magazines compile their rankings and lists varies. Usually the lists are generated from objective, numbers-based criteria, observers say.
However, subjectivity and editorial discretion can be involved. Often publications will compile a short list of funds using quantitative criteria and then select the top funds based on more subjective factors.
For instance, Money magazine compiles its short list by first crunching numbers and evaluating one-, three- and five-year returns. But the publication also relies on "old-fashioned collective wisdom--the common sense that comes from years of following the mutual fund industry and interviewing brilliant portfolio managers," it says.
Other lists try to predict what funds will provide the greatest return or fit well in future market environments. Their attempt to predict the future casts a greater degree of subjectivity than other lists that look at past performance and current returns.
For instance, every December, Mutual Funds magazine publishes a Top 10 list offering what it feels will be the best funds for the upcoming year. This year's list included funds that will provide "safety and growth in the coming year."
While publications' rankings may be founded on hard data, guesswork can also arise in sectors and types of funds publications include on their lists. That often depends on the publication's analysis of the future direction of the market, said Arnold Wechsler, CEO of marketing firm Wechsler Ross & Partners. However, investors need to be wary of following the lists without conducting their own due diligence. As the old adage goes, "Past performance is no indication of future results," Wechsler said.
