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Rating:Stodgier Firms Win in Morningstar's Newest Measure Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, August 07, 2006

Stodgier Firms Win in Morningstar's Newest Measure

by: Sean Hanna, Editor in Chief

Morningstar has given a sneak peak into the winners and losers of its "investors returns" measure of fund performance. The MFWire first reported on the fund tracker's planned asset-weighted measure in May (see "Phillips Hints at Morningstar's Next Numbers", 5/25/2006"). The new measure is a response to the ups and downs of the market over the past decade and the finding that many fund investors jump on board after a run-up and too late to gain from the rise. Early reports suggest the biggest fund families may benefit from the measure.

The Vanguard Group, Capital Research & Management's American Funds, Fidelity Investments, Dodge & Cox and Franklin Templeton Investments are all fund firms with products that have high investor returns, reports the Wall Street Journal. Pulling up the rear of the list are Janus, MFS Funds and AIM Investment Funds.

The difference between the traditional time-weighted return and the asset-weighted return can be a large one, the paper found. Morningstar used the MFS Capital Opportunities Fund as an example of the potenital difference in the two measures. The fund posted a 6 percent return for the decade ending in May. On an asset-weighted basis, though, the fund's return became -3.2 percent -- a 920 basis point swing.

In another case, the Janus Overseas Fund saw its 12.8 percent average annual return sliced to just 5 percent by Morningstar's reckoning.

Across all Janus funds the average asset-weighted return trailed the traditional time-weighted measure by 560 basis points (2.3 percent to 7.9 percent annual returns over the past decade).

In contrast, Morningstar found that investors in the four Dodge & Cox funds realized all but three basis points of the returns earned by the funds over the past decade.

Don Phillips, a managing director at Morningstar, said that the measure is based on monthly returns and is still being fine tuned. 

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