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Morningstar, Inc. Reports European and Asian Fund Performance for Q3 2009

European fund closures outpace fund launches; risk continues to pay; emerging markets still strong; and Australian and New Zealand equities charge to first place

London, 15 October 2009—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today released its quarterly review of fund performance for funds domiciled in Europe and Asia. All performance averages are based on Morningstar Europe and Asia fund categories and are quoted in pounds sterling.

Highlights of third-quarter 2009 fund performance include:

• Projected net fund closures reach 5 per cent of European-domiciled funds by year-end
• Australian and New Zealand Equity leaps to first place
• Emerging markets remain strong with funds focused on Eastern European markets surging
• Depreciating pound lands UK fund categories behind European neighbours
• Strongest UK fund performance found in Small-Caps
• China Equity and Japan Equity funds deliver poor performance
• Real Estate Indirect Europe and Financial categories lead sector tables
• Real Estate Direct delivers worst sector performance
• Government bonds and defensives lag

Industry consolidation continued to gather pace throughout the third quarter. The universe of European-domiciled funds continued to contract, with fund closures in 2009 surpassing fund launches for the first time since the start of the credit crunch.

From the 38,238 funds in European domiciles tracked by Morningstar as of 1 January 2009, approximately 2,968 have closed, while 1,560 funds have been launched. At the current rate of contraction, a total of 3,957 funds are projected to close by year-end, with new launches of 2,080 funds projected. That equates to net closures of 1,877 funds - roughly 5 per cent of the European domiciled fund universe.

“The industry is showing signs of significant contraction and while we believe this is for the best, we also believe there are significant dangers to investors,” said Christopher Traulsen, CFA, director of fund research for Morningstar Europe and Asia. “During the boom years we saw too many funds launched in an attempt to grab assets, and many funds were unable to gain economies of scale and have had to pay high fees for distribution. This has led to high costs for fund investors.`

Fund performance during the third quarter was strong. Investors in higher-risk equities continued to gain, with small-caps, emerging markets, and high-yield bonds continuing to outperform. Funds heavy on financials or resources also enjoyed significant upswings.

A similar trend held true among fixed-income funds. Those funds focused on riskier credits strongly outperformed those oriented to higher-quality issues. High Yield Bond categories delivered the strongest returns within each currency grouping, followed by the Convertible Bond and Corporate Bond categories. Government Bonds delivered considerably weaker results.

Once again, emerging markets categories delivered exceptionally strong returns. Turkey Equity continued its lead, with a quarterly return of 37.9 per cent. Russia Equity funds also fared well, with an average quarterly gain of 35.6 per cent. Poland Equity, almost doubling its previous quarterly performance, returned 34.9 per cent for the quarter, to finish in third place.

In developed Europe, Austria Equity, Belgium Equity, and Netherland Equity delivered the strongest returns, with 33.6 per cent, 31.7 per cent, and 32.3 per cent, respectively. Switzerland Equity, Europe’s worst-performing category in the second quarter, stilled lagged relative to its European peers, but was in line with the quarter’s strong performances generally, achieving an increase of 26 per cent for the quarter.

In the UK, depreciation of the British pound pulled UK Equity funds to the bottom of the European performance tables. However, in real terms, funds across the UK categories enjoyed gains, with the UK Small-Cap Equity delivering the highest return at 22.9 per cent for the quarter. The average quarterly gain for the UK Large Cap Equity categories was 20.7 per cent.

UK-domiciled funds of note for the quarter include Fidelity Special Situations. The fund outperformed its UK Large-Cap Value Equity peers and the 10 largest UK funds with a return of 26.2 per cent, largely due to strong picks across the financials sector. MandG Recovery also continued its impressive run, rising 21.4 per cent in the quarter.

Across the Asia Pacific region, Morningstar’s Asia Pacific equity categories delivered mixed results. The Australia and New Zealand Equity category delivered the strongest performance, delivering investors an average return of 38.1 per cent. However, poor average returns in the Japan Small/Mid Cap Equity (up 12.13 per cent) and Japan Large-Cap Equity (up 9.4 per cent) dragged down the Asia Pacific with Japan category, producing a return of 17.2 per cent; a poor showing in relative terms.

The China Equity category also delivered disappointing results, returning an average 9.9 per cent for the quarter, evidencing investor concern about the tightening of bank lending. In contrast, funds in the Morningstar Asia Pacific ex Japan category rose by an average 22.8 per cent.

Funds in the U.S. Equity categories fared well in absolute terms. Smaller-caps outperformed, with funds in the US Small-Cap Equity category delivering a 21.4 per cent quarterly return. Among large-cap offerings, funds in the US Large-Cap Value Equity category outperformed the blend and growth categories, delivering 20.2 per cent for the quarter. The average large-cap value fund had approximately 18.3 per cent of its holdings in financial services stocks, explaining the bulk of the outperformance given the strength of financials in the third quarter of 2009.

For the second quarter in a row, both the strongest and weakest sector performances were found in Real Estate. The Morningstar Equity Real Estate Indirect, Europe category gained considerably on its second quarter performance to achieve third-quarter average returns of 36.4 per cent. Conversely, Real Estate Direct held onto last place among the sector categories despite some growth, achieving an average return of 6.4 per cent.

“Recent strong performance trends have led some fund houses to suggest launching more higher-risk vehicles,” Traulsen said. “In our view, this is the wrong path to take. We believe funds are a long-term investment and that funds should not be launched to capture whatever the market favours at the time. For most investors, the best course of action is to design a diversified portfolio that ignores short-term noise and focuses on long-term goals.”

- Ends -

Notes to Editors:

For a copy of the complete Morningstar report: Third Quarter in Funds: Risk pays; Industry consolidates rapidly, including fund performances by region, sector and asset class, please visit, or contact: Tel: + 44 (0)20 3107 0023 or

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 Internet, software and print-based products and services for individuals, financial advisers, and institutions. Morningstar provides data on nearly 325,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 19 countries and minority ownership positions in companies based in three other countries.

Morningstar tracks more than 28,000 investment funds available to UK investors, including unit trusts, exchange-traded funds, offshore funds, life and pension funds, hedge funds, and closed-ended investment trusts. It also offers comprehensive fundamental data on all publicly listed companies in the UK, and financial data and director biographies on more than 2,500 UK-quoted companies and 400,000 private companies.

The company has nearly 200 analysts around the world and provides independent research and analysis on more than 2,000 funds and ETFs as well as more than 1,800 stocks.

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