CHICAGO, Oct. 5, 2006 – Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today announced it is providing new data for open-end mutual funds and exchange-traded funds to capture how the average investor fared in a fund over a period of time. The new measure, called Morningstar® Investor Return™, estimates the return earned collectively by all the investors in a fund. Investor return, also known as dollar-weighted return, accounts for all cash inflows and outflows from purchases and sales and the growth in fund assets. It complements the more traditional metric of total return, which measures what investors could have earned had they bought and held the fund, reinvesting all dividends, over a period of time.
“Investors know they should hold diversified portfolios, but many chase past performance and end up buying funds too late or selling too soon,” said Don Phillips, managing director of Morningstar. “For example, if most investors bought a fund at a high point and sold in a trough, that fund’s investor return would be lower than its total return. Similarly, a fund’s investor return might be higher than its total return if investors, in aggregate, timed their purchases and sales astutely. In essence, investor return shows how well—or how poorly— investors in a fund have fared.”
Investor return is an internal rate of return calculation that places greater emphasis on periods in which fund assets are larger. Morningstar now calculates one-, three-, five-, and 10-year trailing and annual investor returns for open-end mutual funds and exchange-traded funds based in the United States.
“Fund companies don’t have complete control over how investors use their funds, but that doesn’t mean they can’t exercise any control,” Phillips said. “Fund companies can influence investor behavior through fund design, the timing of launches and closings, marketing efforts, and shareholder communications. With access to investor returns, investors and advisors can determine which fund companies are successfully deploying strategies that result in a better outcome for investors.”
Morningstar is rolling out investor return data in the following products this month: Morningstar DirectSM, Morningstar® Advisor Workstation, Morningstar® Principia®, and Morningstar® Licensed Data. Individual investors will be able to access the new data in early November on Morningstar.com, the company’s investment Web site.
For more information about Morningstar® Investor Return™, please see the accompanying fact sheet at: http://global.morningstar.com/investorreturn
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions around the world. Morningstar provides data on more than 145,000 investment offerings, including stocks, mutual funds, and similar vehicles.
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