SINGAPORE (July 7): Singapore offers a rich universe of actively managed open-ended funds through which just about any broad investment view can be expressed. However, with over a thousand actively managed primary funds and nearly 6,000 share classes, the choice can be overwhelming.

And, with individual funds, the disclaimer that past performance is not a guarantee of future performance is, unfortunately, often true.

The departure of a fund manager or loss of efficacy of an investment style is among many factors that can disrupt a fund’s returns.

That said, there are useful metrics that can help improve the odds of picking long-term outperformers.

Using Morningstar Direct’s data, we filtered the available funds in Singapore for those with stable and experienced management that have succeeded in outperforming their benchmarks without taking more than moderate risk and charging no more than average fees.

Specifically, the hurdles are:
1. That a fund charges no higher than the average expense ratio among peers in the same category. Being competitive on costs helps boost returns over time;

2. That a fund’s risk is average or below average compared with peers in the same category. Risk is measured by Morningstar’s Overall Risk Rating;

3. That the fund’s managers have been in charge for at least five years, thus providing a track record that has been tested through a full investment cycle;

4. That a fund is a top-quartile performer in its Morningstar category over three years. This means it has outperformed 75% of its global peers over this period; and

5. That a fund has outperformed its benchmark over three years, which shows up in a positive alpha. The higher the alpha, the better a portfolio manager.

In our upcoming issue (week of July 11, PW4 “Best-in-class funds”), we identify 21 “best-in-class” funds across various sectors, spanning those that have been beaten down in recent months and those that have suffered a long period of underperformance, to those that have been advancing on a wave of optimism.

Don’t miss the full story in our Personal Wealth section, available with The Edge Singapore at newsstands tomorrow.