Morningstar Announces New Target-Date Fund Series Rating and Research Reports
May 28 2009 - 11:23AM
PR Newswire (US)
CHICAGO, May 28 /PRNewswire-FirstCall/ -- Morningstar, Inc.
(NASDAQ: MORN), a leading provider of independent investment
research, today said it will launch ratings and in-depth research
reports for target-date fund series. Target-date funds are designed
to help investors prepare for retirement, and typically invest more
aggressively in the decades before retirement and shift their asset
mix to become more conservative in the years immediately preceding
and following retirement. "Target-date funds have come under
scrutiny in recent months. Disparity in the performance in 2008
among funds with the same target-date caused many to second guess
the funds' investment policies and strategies, leading to the joint
hearing before the SEC and the Department of Labor next month,"
said John Rekenthaler, vice president of research for Morningstar.
"Surprise about these variations in performance reveals the lack of
knowledge about this new, fast-growing category of mutual funds.
Morningstar's upcoming research reports and ratings will make
target-date funds more transparent, and will help investors make
meaningful comparisons and informed decisions when evaluating a
target-date fund." Morningstar's target-date fund series ratings
and research reports use two qualitative and three quantitative
measures and a holistic, peer-based approach to analyzing
target-date funds. The five components evaluated by Morningstar
analysts are People, Parent, Performance, Portfolio, and Price. A
fund series can receive a maximum score of 20 points for each
component. Based on the aggregate scores of the five components
(with 100 points being the maximum), each target-date fund series
earns one of five ratings: Top, Above Average, Average, Below
Average, or Bottom. Morningstar will review and update the ratings
annually. Each research report will contain detailed commentary by
a Morningstar fund analyst on all aspects of the scoring, as well
as additional analysis of non-scored aspects of target-date funds'
structure and components. Qualitative components: People --
Examines the fund series' management team and how well Morningstar
thinks they'll serve shareholders over the long term, and
incorporates factors including management tenure, past performance,
and research support. -- Considers the criteria used to determine
fund managers' compensation and whether or not the incentive is to
deliver strong long-term returns to shareholders. Also assesses the
manager's financial commitment to the fund through direct ownership
of shares. -- Assesses the fund board overseeing the target-date
series by determining if the fund board is sufficiently independent
of the fund advisor and whether or not the board has consistently
acted in shareholders' best interest. Parent -- Evaluates whether
fund companies consistently put shareholders' interests first. Fund
firms with industry-leading corporate cultures tend to be
forthcoming about their investment successes and failures, and
stress long-term returns when marketing their funds to
shareholders. -- Examines how well fund companies explain how their
target-date funds operate to current or potential shareholders in
their publicly available materials. -- Notes any regulatory issues
at the fund company within recent years. As a baseline standard,
Morningstar assumes that a company should be fully compliant with
the law; any regulatory breaches are penalized based on the
severity of the infraction. Quantitative components: Performance --
Assesses how well a series of target-date funds has performed
historically relative to its peers on a risk-adjusted basis, taking
into account the relatively short performance histories of many
series, and assigns a score to each target-date fund series based
on a comparison to the universe average. Portfolio -- Calculates a
weighted average Morningstar Rating(TM) for Funds (the "star
rating") for the underlying holdings in the series to determine the
investment quality of the funds. Price -- Assesses the actual costs
investors pay by selecting the lowest-cost share class that has at
least 10 percent of the overall assets in the target-date fund
series. The net prospectus expense ratios for that share class are
then averaged across all of the funds in the series. -- Assigns
score to each target-date fund series based on a comparison to the
universe average. "Many investors intend to hold their target-date
funds for decades and use them as a primary retirement savings
vehicle. It's critical to invest in funds run by companies that
have a strong history of putting shareholders first," Rekenthaler
said. The Target-Date Fund Series Rating and Research Reports will
be available later this year in Morningstar(R) Principia(R),
Morningstar(R) Advisor Workstation(SM) Enterprise Edition,
Morningstar(R) Advisor Workstation Office Edition, and Licensed
Data. Morningstar.com, the company's Web site for individual
investors, will publish the ratings and a modified version of the
report. To view the Fact Sheet, please visit
http://global.morningstar.com/TargetDateRating. 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 more than
300,000 investment offerings, including stocks, mutual funds, and
similar vehicles, along with real-time global market data on more
than 4 million equities, indexes, futures, options, commodities,
and precious metals, in addition to foreign exchange and Treasury
markets. The company has operations in 19 countries and minority
ownership positions in companies based in three other countries.
(C)2009 Morningstar, Inc. All rights reserved. Media Contact:
Courtney Goethals Dobrow, 312-330-1963 or DATASOURCE: Morningstar,
Inc. CONTACT: Courtney Goethals Dobrow of Morningstar, Inc.,
+1-312-330-1963, Web Site: http://www.morningstar.com/
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