CHICAGO, March 28, 2011 /PRNewswire/ -- Morningstar, Inc.
(Nasdaq: MORN), a leading provider of independent investment
research, today released the findings from its 2011 Mutual Fund
Stewardship Grade research study, which evaluated more than 1,000
funds from more than 40 fund families on how well each fund treats
its fund shareholders' capital.
"The results of this study show a very strong correlation
between good stewardship of capital and a positive investor
experience," said Laura Pavlenko
Lutton, editorial director of fund research at Morningstar
and one of the authors of the study. "Investors can use the
Morningstar Stewardship Grade as a leading indicator of whether a
fund will take good care of their money and put fund shareholders'
interests first."
The study looked at how funds have performed since Morningstar
first issued its Stewardship Grades in 2004 and again after the
company revised its Stewardship methodology in 2007. It concluded
that funds with high Stewardship Grades (those receiving grades of
"A" or "B") are very likely to survive in the long-term, and more
likely to provide competitive risk-adjusted returns in the ensuing
period. For purposes of the study, funds are considered successful
if they have a Morningstar Rating of three stars or higher, a
metric that broadly measures whether a fund's shareholders have
fared well relative to peer funds on a risk-adjusted basis. Funds
were deemed unsuccessful if they received a Morningstar Rating of
two stars or lower or if the funds did not survive.
"While we would never suggest that a fund's Stewardship Grade
should be the sole basis for making an investment decision, it can
certainly help investors filter their choices," Lutton said.
"Funds with top Stewardship Grades are most likely to employ
industry best practices and treat fund shareholders like owners, as
opposed to treating them like just another dollar through the
door."
Morningstar uses five major criteria to arrive at a Stewardship
Grade: the corporate culture of a fund's parent organization; the
quality of the board of directors overseeing the fund; the fund
managers' financial incentives; the fund's fees; and the fund
firm's regulatory history. Morningstar analysts assign each
component an individual grade, and combine the scores to provide an
overall Stewardship Grade. Funds that are determined to be the best
stewards of capital receive an "A" grade, while the worst receive
an "F." Morningstar currently assigns Stewardship Grades to
more than 1,000 of the approximately 1,750 funds that its analysts
actively follow.
The study found that of the funds Morningstar graded in 2004 and
2007:
- Almost all--about 99 percent--funds that received "A"
Stewardship Grades survived;
- More than 80 percent of the funds earning grades of "A" or "B"
in 2007 had competitive risk-adjusted returns relative to their
peers;
- Approximately one-third of funds receiving an "F" grade in 2004
didn't survive to today;
- About one-quarter of funds receiving a "D" grade were
liquidated or merged away.
Other positive correlations include:
- Approximately 87 percent of funds that earned "A" grades for
corporate culture in 2007 were successful in the ensuing
period;
- Managers who have their own financial incentives aligned with
fund shareholders had good results—more than 75 percent of the
equity funds earning "A" grades in 2007 in the manager-incentive
category were successful in the ensuing period;
- Funds with low fees had the best risk-adjusted returns,
primarily over long-term periods.
Among all current fund evaluations, the most common Stewardship
Grade is a "C," which Morningstar assigns to 455 funds. On the high
end of the scale, 90 funds currently earn an "A" overall grade and
359 funds receive a "B." On the lower end, 145 funds currently
receive a "D," and just two funds receive an overall Stewardship
Grade of "F."
Morningstar's study also calculated an average Stewardship Grade
for all of the funds it grades within 44 different fund families.
Six fund families currently earn an average overall Stewardship
Grade of "A": American Funds, Clipper, Davis, Diamond Hill, Dodge & Cox, and PRIMECAP.
Average overall Stewardship Grades of "B" are assigned to another
16 fund families, and 17 fund families receive "C" grades. Five
fund families receive "D" grades in the report. No fund family
currently receives an average overall Stewardship Grade of "F."
To see the complete study, please visit:
http://global.morningstar.com/2011StewardshipGrades.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent
investment research in North
America, Europe,
Australia, and Asia. The company offers an extensive line of
Internet, software, and print-based products and services for
individuals, financial advisors, and institutions. Morningstar
provides data on approximately 380,000 investment offerings,
including stocks, mutual funds, and similar vehicles, along with
real-time global market data on more than 5 million equities,
indexes, futures, options, commodities, and precious metals, in
addition to foreign exchange and Treasury markets. The company has
operations in 26 countries.
©2011 Morningstar, Inc. All rights reserved.
MORN-R
Media Contact:
Shawn Malayter, 312.696.6050,
shawn.malayter@morningstar.com
SOURCE Morningstar, Inc.