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Sarah Pellegrinosarah.pellegrino@morningstar.com
Morningstar’s First Global Study of Investor Returns Evaluates Impact of Investor Behavior and Finds Automatic Savings Plans Produce Better Outcomes

CHICAGO, May 30, 2017—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its first global study of investor returns, “Mind the Gap 2017,” which measures how the average investor fared in a fund and the impact investor behavior can have on investment outcomes. The study uses the Morningstar® Investor ReturnsTM methodology to derive a dollar-weighted return of a fund that incorporates the effect of cash inflows and outflows from purchases and sales, as well as the increase in a fund’s assets. The “gap” refers to the shortfall between funds’ money-weighted and time-weighted returns, reflecting how opportunely investors have timed their investments.

During the five-year period through Dec. 31, 2016, the study found that investor returns across the globe varied from stated returns, on average, by a range of -1.40 percent to 0.53 percent per year. However, investors achieved better outcomes when using systematic investment programs and invested in lower-cost funds. The study draws on preliminary Morningstar open-end mutual fund data from Australia, Canada, Hong Kong, Luxembourg, Singapore, South Korea, Taiwan, the United Kingdom, and the United States and calculates average asset-weighted investor returns and average total fund returns. Morningstar also tested four factors and their effect on investor returns: expense ratio, risk, standard deviation, and manager tenure.

“Steady investment contributions to savings plans and automatic rebalancing proved to be key in generating positive investor returns in countries including Australia, South Korea, and the United States,” said Russel Kinnel, chair of Morningstar’s North America ratings committee and editor of Morningstar® FundInvestorSM. “As savings plans increasingly offer an automatic investment option, investors are also getting more access to lower-cost funds. Our research demonstrates that, when sorted on fees, lower-cost funds produced better investor returns across the board, a trend surfacing in Luxembourg and the United States.”

Key highlights of the study include:

  • Investors in Singapore experienced the largest negative investor return gap, at -1.40 percent per year for the five years ended December 2016. By contrast, investors in Australian superannuation funds benefited from the largest positive investor return gap at 0.53 percent per year.
  • The investor return gap in the United States shrunk to 37 basis points annualized over 10 years from 54 basis points for the 10 years ended 2016, indicating that investors are making less harmful market timing calls.
  • Investor returns per year proved positive for allocation funds in the United States at 0.05 percent, superannuation funds in Australia at 0.53 percent, and fixed-income funds in South Korea at 0.47 percent. These countries all offer investment vehicles with automatic contribution or payment options that keep investors on track and prevent them from unwise market timing moves.
  • In the UK, diversified-equity fund investors produced better results on average than allocation fund investors with a -0.27 percent and -0.55 percent investor return gap, respectively.
  • When grouped by expense ratio, investor returns declined as funds rose in cost, often by more than the difference in cost.

The research report is available here and an article on Morningstar.com® is available here. The U.S. investor returns study is available in the May 2017 issue of Morningstar FundInvestor. Morningstar’s manager research team will release in-depth investor returns studies for Asia, Australia, Canada, EMEA, and the UK in 2017.

Morningstar has approximately 130 manager research analysts worldwide who cover approximately 4,270 funds. The company provides data on approximately 217,000 open-end mutual funds, 11,600 closed-end funds, and 14,100 exchange-traded product listings as of March 31, 2017.

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, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $200 billion in assets under advisement and management as of March 31, 2017. The company has operations in 27 countries.

Morningstar’s Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar’s Manager Research Group’s current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund’s or the fund’s underlying securities’ creditworthiness. This press release is for informational purposes only; references to securities in this press release should not be considered an offer or solicitation to buy or sell the securities.

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©2017 Morningstar, Inc. All rights reserved.

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