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Nadine Youssefnadine.youssef@morningstar.com
Good Stewards of Fund Shareholder Capital Produce Markedly Better Investor Outcomes

Higher manager retention, longer tenure, manager ownership, lower fees coincide with more positive Morningstar stewardship ratings and superior success ratios

CHICAGO, June 26, 2015—U.S. asset managers that practice good fund stewardship produced markedly better outcomes for investors over time, according to research released today by Morningstar, Inc. (NASDAQ: MORN) at the 27th annual Morningstar Investment Conference for financial advisors in Chicago. Morningstar, a leading provider of independent investment research, based its finding on an asset manager’s Morningstar Success Ratio, which is the percentage of a firm’s funds that have survived and outperformed the median fund in a respective category.

Morningstar’s manager research analysts evaluated stewardship practices for about 800 U.S. asset management firms based on four data points: firm average longest manager tenure, Morningstar five-year manager retention rate, firm fund assets with high manager ownership of fund shares, and average Morningstar Fee Level. Morningstar found that higher manager retention, longer manager tenure, higher manager ownership in funds, and lower fees all point to superior Morningstar Success Ratios.

Bridget B. Hughes, CFA, Morningstar’s associate director of stewardship research and lead researcher on the report, said, “Across the U.S. asset management industry, our findings reinforce our long-held belief that stewardship matters and strong stewards produce better outcomes for fund investors.”

Additional key takeaways from Morningstar’s report include:
• Fund firms with average manager tenures of more than 15 years generally beat the performance of firms with shorter average manager tenures.
• Firms with lower manager retention rates had significantly weaker 10-year Morningstar Success Ratios, suggesting that poor performance may have spurred manager turnover and consequently, a lower retention rate.
• One hundred thirty-two fund firms have no manager investment in their funds whatsoever. On average, fund firms with higher manager investment have higher Morningstar Success Ratios for the three-, five-, and 10-year period compared with firms with lower manager investment.
• More than half of U.S. fund firms evaluated in the report have fees, on average, which Morningstar classifies as above average or high. Less than 15 percent of firms have average fees that are classified as low and below average. The Morningstar Success Ratios of fund firms with low fees are nearly double those of firms with high fees based on risk-adjusted three-year annual returns. For the 10-year period, the Morningstar Success Ratios more than triple.

Morningstar will host a webinar on Wednesday, July 29 at 10 a.m. CT to discuss the findings. To register, please click here.

Morningstar incorporates the firm-level stewardship data points into the Morningstar Analyst Rating™ for funds, which represents an analyst’s conviction in the fund’s ability to outperform on a risk-adjusted basis over the long term. More than 100 Morningstar manager research analysts worldwide assign Morningstar Analyst Ratings 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, evaluated for more than 160 U.S. parent fund companies, represents Morningstar’s qualitative view of the firm’s stewardship practices. Morningstar’s Analyst Rating for funds methodology is available here.

The company also assigns a Morningstar® Stewardship GradeSM to the 20 largest U.S. fund firms by assets, focusing on five key areas: Corporate Culture, Fund Board Quality, Manager Incentives, Fees, and Regulatory History. To view Morningstar’s Stewardship Grade for fund firms methodology, please click here. Current Morningstar Stewardship Grades and the component grades are available here.

The report is available at http://global.morningstar.com/stewardship2015. To view Morningstar’s Stewardship Grades for the 20 largest U.S. 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 report, 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 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 15 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 investment advisory subsidiaries and had more than $179 billion in assets under advisement and management as of March 31, 2015. The company has operations in 27 countries.

All figures are as of Dec. 31, 2014 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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©2015 Morningstar, Inc. All rights reserved.


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