The good news is, in the long term, things will work out okay.
The bad news is that there are a lot of miserable short-terms between now and then. The most successful long-term investments are ones that allow you to endure the short term with a minimum of trauma.
Or drama. (Comedian Anita Renfroe offers, “Difficulty is inevitable. Drama is a choice.”)
Or ulcers. (Philosopher Marilyn Monroe: “If you spend your life competing with businessmen, what do you have? A bank account and ulcers!”)
Ulcers are to be avoided. We have a way. The Ulcer Index is a distinctive measure of an investment’s risk profile. It was created by Peter Martin and Byron McCann in 1987 as a way of measuring a fund’s downside misery. 
It encompasses both the depth and duration of drawdowns; a high Ulcer Index is a signal of a deep and/or sustained decline. The MFO Premium definition notes, “A fund with a high Ulcer Index means it has experienced deep or extended declines, or both.” The higher the Index, the longer it will take to get back to its previous high. Your fund might suffer a catastrophic decline that lasts three months or a slow, grinding decline that lasts three years. Both are pains in the portfolio, which the Ulcer Index can measure. In short, the Ulcer Index allows you to quantify your pain.
The Ulcer Index becomes especially important in uncertain markets, such as those we face now. War in Ukraine. Showdown in Washington, with Treasury Secretary Yellen’s May 1st warning that the government could run out of money within 30 days. Recession. Stagflation (ugly word). Fed overshoot. Increasingly unstable global climate.
We used the Ulcer Index as a tool for identifying global equity funds with the most consistent record of generating decent returns with the least possible pain. The list of top performers is remarkably consistent over the past 5-, 6-, 7-, 8- and 9-year periods.
We screened for global equity funds, which returned at least 5% annually for each time period, then sorted by the funds’ Ulcer Index. The top-ranked fund is not the highest-return fund in its peer group; it’s the fund that returns you at least 5% annually with the least drama.
Global investing without an ulcer
| Rank | 5 year | 6 year | 7 year | 8 year | 9 year |
| 1 | Ariel Global | Ariel Global | Ariel Global | Ariel Global | Ariel Global |
| 2 | Franklin Global Div | Franklin Global Div | Franklin Global Div | Franklin Global Div | Franklin Global Div |
| 3 | SEI Global Mgd Vol | American Funds Capital Income Builder | American Capital Income Builder | Castle Focus | Castle Focus |
| 4 | Castle Focus | SEI Global Mgd Vol | SEI Global Mgd Vol | MFS Low Vol Global | MFS Low Vol Global |
| 5 | BNY Mellon Global Equity Income | MFS Low Vol Global | MFS Low Vol Global | SEI Global Mgd Vol | SEI Global Mgd Vol |
| 6 | iShares MSCI Global Min Vol | Castle Focus | Castle Focus | Vanguard Global Mgd Vol | Vanguard Global Mgd Vol |
| 7 | SmartETFs Div Builder ETF* | Vanguard Global Mgd Vol | Vanguard Global Mgd Vol | BNY Mellon Global EI | BNY Mellon Global EI |
| 8 | GS Enhanced Dividend Global | BNY Mellon Global EI | BNY Mellon Global EI | iShares Global Min Vol | iShares Global Min Vol |
| 9 | Fidelity Global Equity Income | iShares Global Min Vol | iShares Global Min Vol | SmartETFs Div Builder* | SmartETFs Div Builder* |
*Formerly Guinness Atkinson Dividend Builder Fund, which converted to an ETF in March 2021
“Beauty may be only skin-deep, but gracious goes right to the bone”
The fundamental maxim for beginning investors is this: you can’t count on last year’s returns. Both the SEC and FINRA require the disclosure: “Past performance does not guarantee future results.” While it is true that you can’t count on returns, you can count on risk-consciousness. That is, managers’ risk tolerance is pretty fundamental to their approach to investing. For some, it’s “all offense, all the time.” For others, it’s “Let’s not do anything stupid, people.” As a result, a fund’s risk profile is more stable than its returns profile.
That’s well illustrated in the chart above. Funds that have very low Ulcer Index scores in one period tend to have low Ulcer Indexes in all periods. Forty-three of the 45 cells in our table are occupied by funds that appear multiple times.
The takeaway is simple: if you find a low Ulcer Index fund with acceptable returns (in our case, 5% or more annually), it’s likely that you can anticipate a comparable risk and return profile in the years ahead.
Here’s the nine-year record for our nine best global funds.
| Batting average | Annual returns | Maximum drawdown | Ulcer Index | Min/max 3-year rolling average | |
| Ariel Global | 1.000 | 5.8% | -15.5% | 4.2 | 1.3 – 12.0 |
| Franklin Templeton Global Dividend | 1.000 | 6.9 | -18.6 | 4.3 | -0.2 – 12.8 |
| Castle Focus | 1.000 | 5.6 | -20.1 | 4.7 | -1.2 – 12.3 |
| MFS Low Vol Global Equity | .800 | 7.3 | -18.3 | 4.7 | -0.2 – 11.2 |
| SEI Global Mgd Vol | .800 | 6.6 | -19.3 | 4.8 | n/a |
| Vanguard Global Mgd Vol | .600 | 7.1 | -21.7 | 4.8 | n/a |
| BNY Mellon Global Equity Income | 1.000 | 7.6 | -21.1 | 4.9 | 1.5 – 15.6 |
| iShares MSCI Global Minimum Vol Factor | 1.000 | 7.0 | -17.4 | 5.0 | -0.1 – 12.5 |
| SmartETFs Div Builder ETF | .600 | 8.5 | -20.0 | 5.5 | 2.6 – 20.7 |
| MSCI World | 7.8 | -25.4 | 7.1 | 1.9 – 21.7 |
Vanguard and SEI do not yet have 10-year records. Based on a shorter analysis period (5 years), Vanguard has the group’s weakest record, and SEI has the second-weakest.
How do you read the table? “Batting average” is the percent of times the fund appears; funds batting a thousand qualified as top performers over the last 5-, 6- 7-, 8- and 9-year periods. “Annual returns” are the fund’s average annual return in percentage. “Maximum drawdown” is the fund’s single worst decline over the past nine years. “Ulcer Index” is a metric calculated by factoring the depth and duration of the fund’s worst declines.
Finally, the “min/max 3-year rolling average” examines the experience of longer-term fund investors. A fund’s 3-year rolling average is how it has performed over each of the 85 36-month periods (March 2015 – Feb 2018, April 2015 – March 2018, and so on) in the past decade. It answers the question, “If you’re willing to give your manager three years before deciding to bail, what’s the worst you might anticipate? And what’s the best?” For Ariel, the worst experience for investors willing to hold for three years was an annual gain of 1.3%, and the best stretch saw annual gains of 12%.
The rolling average is another window into a fund’s consistency. There are, for example, five global equity funds – including Ariel Global – with exactly the same nine-year returns but dramatically different three-year rolling averages. One of the funds, Hotchkiss & Wiley Global Value, posted a -9.1% annual loss for a three-year period on its way to 7.2% average gains, while Ariel never had a losing stretch. But the same fund that had the group’s worst stretch also had its best stretch: 23.1% annually over a three-year period. That’s dramatic!
And tell me again: why on earth would you want drama in your portfolio?
The Perennial Winners
Here’s what you need to know about the funds that were top performers in 100% of the periods that were examined.
Ariel Global (AGLOX / AGLYX)
Snapshot: three-star fund, primarily large cap with a strong quality plus low volatility bias, 54 stocks, active share of 97. The “active share” measures the difference between the fund’s portfolio and its benchmark index’s. Scores in the upper 90s mean that the portfolio is almost entirely independent of a passive benchmark.
They say: “We believe investing in undervalued, high-quality businesses with a long-term time horizon is an optimal way to generate strong absolute and relative risk-adjusted returns over a full market cycle. Buying shares of companies suffering from undue neglect, short-term thinking, excessive pessimism, or even a misunderstanding provides a margin of safety.”
Franklin Templeton Global Dividend (LGDAX / LDIFX)
Snapshot: three-star fund, primarily mid-to-large cap with a strong value bent, low vol / high momentum bias (per Morningstar), 101 stocks, an active share of 99.
They say: “The goal is to provide long-term capital appreciation and income with lower volatility than traditional equity portfolios, seeking to combine risk management with upside return potential. Of course, there can be no assurance that this objective will be achieved.
The fund invests at least 80% of its net assets, plus the amount of borrowings for investment purposes, if any, in equity and equity-related securities that provide investment income, dividend payments, or other distributions or in other investments with similar economic characteristics… Both statistical and fundamental risk measures are used to create a diversified portfolio with a lower-than-market risk profile.”
Castle Focus (MOATX)
Snapshot: two-star fund, primarily large cap with a strong quality bias, 21 stocks, an active share of 91.
They say: “Tandem invests in dividend-growing companies that they believe are capable of growing earnings regardless of economic circumstances. The Fund follows Tandem’s Large Cap Core strategy that they have used for private clients since 1991.”
BNY Mellon Global Equity Income (DEQAX / DQEIX)
Snapshot: five-star fund, primarily large cap with a strong value bias, 57 stocks, an active share of 99
They say: the fund focuses on “dividend-paying stocks of companies located in developed capital markets.” Newton Investment Management, the subadviser, and a BNY subsidiary, “believes the pursuit of higher current equity yields and dividend growth can be greatly enhanced through a global, thematic, disciplined approach, avoiding the risky income-enhancing techniques of some managers.”
Low-Ulcer Investing in Other Realms
We applied the same logic and same metrics to a variety of other investment categories. In each case, we started with funds or ETFs that made at least 5% annually over the past nine years and then identified the single lowest-drama fund in the group.
| Lipper category | Annual returns | Maximum drawdown | Ulcer | Min/max 3-year rolling average | |
| Emerging Markets | Matthews EM Small Company | 7.0 | -26.0 | 11.9 | -3.0 – 29.0 |
| International Equity Income | SmartETFs Asia-Pacific Dividend Builder | 6.1 | -30.5 | 10.3 | -2.4 – 15.1 |
| International Large Cap | AMG River Road International Value Equity | 6.1 | -19.6 | 5.0 | -0.5 – 11.2 |
| International Value | AMG River Road International Value Equity | 6.1 | -19.6 | 5.0 | -0.5 – 11.2 |
| International Small-to-Mid | Fidelity Int’l Small Cap | 5.8 | -30.0 | 10.0 | -18.2 – 50.8 |
| US Equity Income | Vanguard Dividend Growth | 10.8 | -17.5 | 4.1 | -13.5 – 22.4 |
| US Small | Virtus KAR Small-Cap Core (closed to new investors) | 14.7 | -18.3 | 5.4 | -15.7 – 33.0 |
| US Small | FPA Queens Road Small Cap Value (open!) | 7.1 | -21.9 | 5.5 | -12.0 – 25.9 |
| US Value | American Funds American Mutual | 9.0 | -18.2 | 4.0 | -11.3 – 28.0 |
| Flexible Portfolio (bond) | Spectrum Low Vol | 6.3 | 5.5 | 1.5 | 4.9 – 12.2 |
| Flexible Portfolio (hybrid) | Leuthold Core | 5.1 | -12.9 | 4.0 | 1.3 – 12.3 |
The clearest outliers identified by this screen are the two flexible portfolios.
Spectrum Low Volatility (SVARX) “invests in an array of global fixed income sectors through liquid products and adjusts sector allocations as necessary.” The managers can both hedge against interest rate risk and “selectively use leverage … when conditions are favorable. The Fund’s manager has specialized in low-risk leverage strategies for over 30+ years.” The fund does occasionally have losing years (down 1% in 2018 and 4.4% in 2022) but has never had consecutive losing years or a three-year losing period.
Leuthold Core (LCORX / LCRIX) is a venerable quant portfolio from Leuthold Investment Management. They “believe the most important decision is proper asset class selection and a highly disciplined, unemotional method of evaluating risk/reward potential across investment choices. We adjust the exposure to each asset class to reflect our view of the potential opportunity and risk offered within that category. Flexibility is central to the creation of an asset allocation portfolio that is effective in a variety of market conditions. We possess the flexibility and discipline to invest where there is value and to sell when there is undue risk.” In general, they stay in the 30-70% equity range, depending on the recommendations of their computer models. Those same models lead them to an exceptional array of assets: US equity, international debt, equity hedges, gold, high yield bonds … Since inception, LCORX has captured about half of the S&P 500’s downside and 60% of its upside.
Bottom line
Life is uncertain. Eating dessert first is an excellent impulse. So is learning new ways to manage that uncertainty. This essay offers you two paths. First, there are a bunch of managers – from Rupal Bhansali at Ariel Global to the team at Leuthold Core Investment – who have sterling records for protecting you in bad times and making solid returns in good. They deserve your attention.
Second, MFO Premium – available as a thank you for folks who contribute $120 a year or more – allows you to refine the work I began here. I chose to look at global equity funds that booked at least 5% annually. You could easily decide that your particular needs would be better suited by an emerging markets value equity fund, a multi-sector income fund, or a real returns fund. You might decide that 5% is too piddly and nine years is too long. Heck, you might even decide that you’re more interested in alternative risk measures like a fund’s capture ratio or its minimum five-year rolling average. All of those measures are easily accessible for some 10,000 investment vehicles. Our colleague, Charles Boccadoro, is master of the site and a great partner for folks hoping to learn how best to use it.
For catastrophists, we’ll close with the words of Anita Renfro, whose aphorism opened this essay: “Please allow me to offer a simple financial plan. Invest in chocolate. Buy bars. Lots of bars. If we do enter anything approximating a real financial depression, you will not be able to improve your mood with gold.” Don’t Say I Didn’t Warn You: Kids, Carbs, and the Coming Hormonal Apocalypse (2009).