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Administration February 3, 2004
Morningstar Sends Funds into Style Shift
March 26, 2002 (PLANSPONSOR.com) - Some mutual funds
might find themselves in a new performance classification
category when Morningstar Inc. overhauls its well-known style
box system.
Reported by Camilla Klein
The group currently classifies mutual funds into nine categories, by the market capitalization of their holdings, and the investment style of their managers – growth, value or blend.
The firm, which previously used only price-to-book and price-to-earnings to classify the individual stock holdings within a portfolio, which then determined the fund’s overall style, will now use 10 stock classification factors, including price-to-cash flow and historical earnings growth.
The changes will take effect at the end of May and mean new style boxes for about 9% of the funds tracked by Morningstar – 350 funds.
When funds shift into a new performance category, the way they stand up to their competitors also shifts. In one category a fund could lead the pack, but in another it could be in the middle.