Morningstar Publishes Findings from Latest Study of Asset Managers' Fund Stewardship Practices

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Printer-friendly versionPrinter-friendly versionPDF versionPDF versionCHICAGO, March 20, 2014—New research from Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, reinforces that asset managers with good fund stewardship practices have produced better outcomes for investors. Morningstar analysts examined stewardship practices alongside the firms’ success ratios, which Morningstar defines as the percentage of a firm’s funds that have survived and outperformed the median fund in a respective category, considering the funds’ total returns as well as risk-adjusted returns.Specifically, the analysts evaluated four Morningstar firm-level data points that measure stewardship—Average Manager Tenure, Manager Retention Rates, Manager Ownership of Fund Shares, and Morningstar Fee Level—which Morningstar calculates for more than 750 U.S. asset managers. Morningstar then assessed whether firms with positive stewardship data had stronger success ratios. The analysts also evaluated this data among the 179 firms that receive Morningstar’s qualitative stewardship ratings. Overall, Morningstar found that higher manager retention and tenure, higher manager ownership in funds, and lower fees coincide with more positive Morningstar stewardship ratings and superior success ratios.“We undertook this study to determine whether our belief that firms with good stewardship practices provide better investor outcomes was evident, and the results strongly support that conclusion,” Bridget Hughes, Morningstar’s associate director of fund research and lead author of the study, said. “Our proprietary, firm-level data points measure whether asset managers are aligning their interests with their funds’ shareholders, in terms of manager tenure and retention, manager ownership in funds, and fees. In turn, these data points inform our assessment of firm stewardship, expressed through our Stewardship Grades and the Parent component of our Analyst Ratings for the funds and fund companies we cover.”As of Jan. 31, 2014, analysts assigned four “A” Morningstar® Stewardship GradesSM, six “B” grades, and 10 “C” grades to the largest U.S. fund firms, which represent more than two-thirds of the industry’s total U.S. mutual fund assets. The four firms that earn an “A” are American Funds, Dodge and Cox, T. Rowe Price, and Vanguard.Key findings of the study include:• Fund firms with average manager tenure of more than 15 years exhibit higher success ratios, or the percentage of a firm’s funds that have survived and outperformed the median fund in a respective category, than fund firms with average manager tenures of zero to three years. • Fund firms with a 95 to 100 percent five-year manager retention rate have achieved the strongest average success ratios. Morningstar’s manager retention rate measures what percentage of a firm’s portfolio managers have stayed at the company for a specific period of time.• Firms with 80 to 100 percent of their fund assets where at least one manager has more than $1 million invested report the best success ratios, on average. Firms with less than 20 percent of their fund assets where at least one manager has more than $1 million invested tend to have the worst success ratios.• Firms with lower average fee levels report better success ratios over three-, five-, and 10-year periods.• A correlation matrix, which measures the existence of two characteristics together but doesn’t necessarily indicate causation, suggests that the data points featured in the study are largely independent measures of stewardship and together help identify strong caretakers of capital.Morningstar assigns a Morningstar Analyst Rating™ to more than 3,500 funds globally, evaluating five key pillars for each fund: People, Process, Parent, Performance, and Price. The Parent pillar rating of Positive, Neutral, or Negative represents Morningstar’s qualitative view of the firm’s stewardship practices. Morningstar evaluates 179 U.S. parent fund companies: 43 percent of those firms earn Positive Parent pillar ratings, 46 percent earn Neutral Parent pillar ratings, and 11 percent earn Negative Parent pillar ratings, as of Dec. 31, 2013.The study is available at http://global.morningstar.com/stewardship2014. To view Morningstar’s Stewardship Grade for fund firms methodology, please click here. Morningstar’s Analyst Rating for funds methodology is available here. To view Morningstar’s Stewardship Grades for the 20 largest fund firms, please visit Morningstar.com®, the company’s website for individual investors. Detailed analysis supporting the Stewardship Grades for fund firms and the Parent pillars of the Analyst Rating for funds, as well as the firm-level data included in the study, are available in Morningstar DirectSM, the company’s global investment analysis platform for institutional investors, and Morningstar OfficeSM, a global practice and portfolio management solution for advisors.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 individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 446,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 10 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 had approximately $159 billion in assets under advisement and management as of Dec. 31, 2013. The company has operations in 27 countries.All figures are as of Dec. 31, 2013, unless otherwise noted.Stewardship Grades and Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. They are based on Morningstar analysts’ current expectations about future events and therefore involve unknown risks and uncertainties that may cause Morningstar’s expectations not to occur or to differ significantly from what was expected. Morningstar does not represent its Stewardship Grades or Analyst Ratings to be guarantees nor should they be viewed as an assessment of a fund’s or the fund’s underlying securities’ creditworthiness. The contents of this press release are for informational purposes only and should not be considered an offer or solicitation to buy one or more of the mutual funds offered by the above mentioned mutual fund companies.

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