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Wednesday, April 19, 2006

New Lipper Categories Reflect Market Developments

Reported by Marie Glancy

Fund research firm Lipper Inc. has enhanced its fund classification system in response to the rising popularity of lifestyle and lifecycle funds. As Morningstar did last month, Lipper has unveiled new categories to separately classify target date funds. The New York-based firm, a subsidiary of Reuters, also added classifications to help identify and compare funds that use hedging strategies.

Open-end lifestyle funds will now be rated in one of three "mixed-asset target allocation" categories: growth, moderate, or conservative. Open-end lifecycle funds, meanwhile, will be rated according to their target date: 2010, 2020, 2030, or later than 2030.

Lipper has added following categories for open-end funds that hedge: dedicated short bias, equity market neutral, and long/short equity.

In a press release, the company cited a September 2005 report from the Investment Company Institute (ICI) which stated that close to 16 percent of 401(k) assets are now invested in lifecycle and lifestyle funds.

"As we see more granularity in the market, we try to make changes in our classification system," said Bill Sickles, senior research analyst at Lipper. He said that funds in the new categories will be fully integrated into Lipper's system of rankings and awards once they build "sufficient history" as separately classified funds.

Sickles said mutual fund companies have welcomed the expanded classification system, especially since it allows advisors of successful funds to illustrate their results clearly for potential investors. "They like the fact that they're being segregated out so they can do apples-to-apples comparisons," he said.  

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