Tuesday, November 15, 2011
Vanguard Dominates Morningstar's New Ratings
Reported by Neil Anderson, Managing Editor
's new, forward-looking mutual fund ratings are here, and Vanguard
, T. Rowe Price
all look like big winners. The Chicago-based fund firm rated about 350 U.S. funds (MFWire.com
counted 347) from 72 fund firms, and several famous funds made it onto this initial list [see the full list here
The ratings are based on five pillars, all p-words: parent, people, performance, price and process [see fact sheet
Morningstar started with its own analysts' pick funds and the biggest funds in the business. Russ Kinnel
, director of mutual fund research, confirmed that they plan to expand the ratings to maximum of about 1,500 funds by the end of 2012, continuing to target the "funds with the most investment merit and investor interest."
"We started with the picks and the biggest funds … Inevitably, we're probably rating the 1,500 best funds," Kinnel told MFWire.com
, "and therefore there's a natural skew to it."
As for the current ratings, Vanguard had almost 20 percent of first batch, 68 funds, including 42 gold, 20 silver and three bronze ratings. Thirty-seven Fidelity funds received ratings, including 13 gold, 13 silver and five bronze. And T. Rowe Price nabbed 32 spots, including 21 gold, six silver and three bronze.
"They're low-cost and good stewards," Kinnel said of Vanguard. "We're agnostic to the active and passive question."
How did the famous funds do? Bill Gross
' Pimco Total Return
, Vanguard Wellington
all earned gold ratings. American Funds
' Growth Fund of America
, Bruce Berkowitz
' Fairholme Fund
and Fidelity Contrafund
all landed silver. TCW Total Return
won a bronze. And Jeff Gundlach
's DoubleLine Total Return Bond
, Fidelity Magellan
and Bill Miller
's Legg Mason Capital Management Value Trust
all squeaked in with neutrals.
Here's a list of the U.S. fund firms that made the list, along with how many ratings they received:
AllianceBernstein, one negative;
Allianz, 1 silver;
American Century, 1 bronze, 2 neutral, 1 negative (4 total);
American Funds, 6 gold, 16 silver, 1 neutral (23 total);
Ariel, 2 bronze;
Artio, 2 silver;
Artisan, 4 gold, 1 silver (5 total);
BlackRock, 1 gold, 1 silver, 1 bronze (3 total);
Bogle, 1 gold;
Brown Capital Management, 1 gold;
Buffalo, 1 silver, 1 neutral (2 total);
Calamos, 2 silver;
Causeway, 1 gold;
Clipper, 1 gold;
Columbia, 2 bronze, 1 neutral (3 total);
Davis, 2 gold, 1 bronze (3 total);
Diamond Hill, 1 gold;
Dodge & Cox, 5 gold;
DoubleLine, 1 neutral;
DWS, 1 negative;
Eaton Vance, 1 gold;
Fairholme, 1 silver;
Fidelity, 13 gold, 13 silver, 5 bronze, 6 neutral (37 total);
FMI, 1 gold;
FPA, 1 gold;
Franklin, 3 gold, 1 silver, 2 bronze (6 total);
Harbor, 5 gold, 1 bronze (6 total);
Hartford, 1 silver;
Invesco, 2 silver, 1 neutral (3 total);
Janus, 1 silver;
Jensen, 1 gold;
John Hancock, 1 negative;
JPMorgan, 11 silver, 1 neutral (12 total);
Legg Mason, 2 neutral, 1 negative (3 total);
Litman Gregory, 1 gold;
Longleaf Partners, 2 gold;
Loomis Sayles, 2 gold, 1 silver (3 total);
Managers, 1 bronze;
Manning & Napier, 3 gold;
Matthews, 2 gold, 1 silver (3 total);
MetWest, 1 gold;
MFS, 1 silver, 1 bronze (2 total);
Morgan Stanley, 5 gold, 2 silver (7 total);
Mutual, 1 gold, 2 silver, 2 bronze (5 total);
Neuberger, 1 silver;
Oakmark, 4 gold, 1 silver (5 total);
OppenheimerFunds, 2 silver, 2 bronze, 1 neutral (5 total);
Osterweis, 1 gold;
Perkins, 2 gold;
Pimco, 6 gold, 5 silver, 10 bronze (21 total);
PrimeCap, 3 gold;
Putnam, 3 neutral;
Royce, 2 gold, 3 silver, 3 bronze, 1 neutral (9 total);
Schneider, 1 bronze;
Scout, 1 gold;
Selected, 1 gold;
Sequoia, 1 gold;
Sound, 1 silver;
Spartan, 1 bronze;
T. Rowe Price, 21 gold, 6 silver, 3 bronze, 2 neutral (32 total);
TCW, 1 bronze;
Templeton, 1 gold, 1 silver, 3 neutral, 1 negative (6 total);
Third Avenue, 1 gold, 3 silver, 1 bronze (5 total);
Thornburg, 1 gold, 1 bronze (2 total);
Tweedy Browne, 1 silver;
Turner, 1 bronze;
Vanguard, 42 gold, 20 silver, 3 bronze, 3 neutral (68 total);
Wasatch, 1 gold;
Weitz, 1 gold, 2 silver (3 total);
Wells Fargo, 1 neutral, 1 negative (2 total);
Winslow, 1 negative;
and Yacktman, 1 gold, 1 silver (2 total).
Company Press Release
CHICAGO, Nov. 15, 2011—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today introduced forward-looking, analyst-driven global fund ratings for approximately 350 U.S. funds. The Morningstar Analyst RatingTM for funds supplements the Morningstar RatingTM for funds, commonly known as the “star rating,” which assigns one to five stars based on a fund’s past risk- and load-adjusted returns versus category peers. In addition, Morningstar launched new, in-depth Global Fund Reports for a subset of the newly rated funds.
The new five-tiered Morningstar Analyst Rating scale has three positive levels—Gold, Silver, and Bronze—in addition to Neutral and Negative ratings. Analysts arrive at a rating through an evaluation of five key pillars they believe are crucial to predicting the future success of a fund, considering both numeric as well as qualitative factors: People, Process, Parent, Performance, and Price. Morningstar analysts score these five pillars as Positive, Neutral, or Negative, which are then combined for the overall rating.
The Analyst Ratings are not designed to be a market call on an asset class or a prediction of short-term performance, and cannot assess whether a fund is the right fit for an investor’s particular portfolio or risk tolerance.
Morningstar reserves the top three tiers, expressed as medals, for funds its analyst team thinks have sustainable advantages that position them well versus peers and/or a relevant benchmark on a risk-adjusted basis over a full market cycle of at least five years.
Don Phillips, president of fund research for Morningstar, said, “The Morningstar Analyst Rating is an important step in the evolution of our fund research. While the rating system is new, our analysts have been producing independent research on funds since the late 1980s. Our quantitative star rating for funds is a backward-looking achievement test, while the new Analyst Rating is more of an aptitude test, signaling to investors our forward-looking perspective on a fund’s ability to be a strong investment option over the long haul. As with the star rating, the Analyst Rating is intended to supplement, not replace, investors’ due diligence process.”
He added, “I started working for Morningstar 25 years ago as our first fund analyst, and we now we have more than 100 fund and ETF analysts worldwide. Our analysts are producing a stunning amount of institutional-quality research that investors and advisors simply can’t find anywhere else. The new ratings and in-depth fund reports better surface our analysts’ opinions of the strengths and weaknesses of the funds we cover and will help investors identify funds our analysts think highly of and those we don’t.”
The new Morningstar Analyst Rating scale is as follows:
Gold: Best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts’ highest level of conviction;
Silver: Fund with notable advantages across several, but perhaps not all, of the five pillars—strengths that give the analysts a high level of conviction;
Bronze: Fund with advantages that outweigh any disadvantages across the five pillars, and sufficient level of analyst conviction to warrant a positive rating;
Neutral: Fund that isn’t likely to deliver standout returns, but also isn’t likely to significantly underperform; and
Negative: Fund that has at least one flaw likely to significantly hamper future performance, and is considered an inferior offering to its peers.
In the United States, the new Analyst Ratings replace the company’s “Analyst Picks and Pans,” a proprietary list of the most-favorite and least-favorite funds chosen by Morningstar’s analysts in each investment category. The new ratings represent a more comprehensive effort and expansion of the Analyst Picks and Pans, by filling in the middle ground of investment options Morningstar analysts cover.
Morningstar plans to assign its new Analyst Rating to 1,500 U.S. funds by the end of 2012, focusing on funds that have garnered the most investor interest and assets, collectively representing more than 75 percent of industry assets. In addition to the largest funds, the analyst team will devote a portion of its coverage universe to smaller funds with distinguishing characteristics. Initially, there will be more positively rated funds than Neutral- or Negative-rated funds because the analyst team is prioritizing funds with the most investment merit and investor interest, which tends to skew toward higher-quality funds. The ratings distribution will even out over time as Morningstar’s analysts ramp up their coverage. Approximately 500 of these U.S. funds will have a new, in-depth Global Fund Report with complete analysis and additional data available to advisors and institutional investors by the end of next year.
The new Morningstar Analyst Rating for funds, along with analysis of the five pillars, is now available on Morningstar’s investment research website for individual investors, Morningstar.com®. The new Analyst Ratings, supporting analysis, and Global Fund Reports are available in Morningstar DirectSM, the company’s web-based global investment analysis platform for institutional investors; and in Morningstar OfficeSM, a global practice and portfolio management solution for advisors. Morningstar will roll out the new ratings and reports in other products over the next several months.
In markets where Morningstar already has analyst-driven ratings, such as the United Kingdom, Europe, Asia, and Australia, the new global ratings system replaces the previous, localized analyst rating scales. The new ratings for more than 1,000 European and Asian funds will be available on Nov. 16 on the company’s local investment research websites in Europe and Asia, as well as local advisor and institutional platforms. Morningstar will transition its rating scale and report format for funds in Australia and New Zealand in early 2012, and will also launch the new Global Fund Reports for European and Asian funds.
Morningstar’s fund and ETF analysts cover about 4,400 funds globally, and the company provides data on nearly 120,000 mutual fund share classes. For more information about the Morningstar Analyst Rating for funds, including a fact sheet, video, and FAQ, please visit http://global.morningstar.com/AnalystRatingForFunds.
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 products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 330,000 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. Morningstar also offers investment management services through its registered investment advisor subsidiaries and has more than $167 billion in assets under advisement and management as of Sept. 30, 2011. The company has operations in 26 countries.
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