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Wednesday, November 16, 2011

Meet Morningstar's Analyst Ratings Team

Reported by Neil Anderson, Managing Editor

If Morningstar's new analyst ratings take off, then fundsters should be keeping an eye on the people behind those ratings. In his Fund Spy column this morning, Morningstar mutual fund research director Russ Kinnel revealed the identities of several of the analysts on three ratings committees. Kinnel also offers an in-depth description of the new ratings and their five pillars: parent, people, performance, price and process.

[To read more about the new analyst ratings, launched yesterday, see MFWire.com's prior coverage.]

Meanwhile, several pubs noticed that a single one-star fund under Morningstar's longstanding, backwards-looking and performance- and risk-based star ratings system received a gold rating under the new, more nuanced, forward-looking analyst ratings system. Keep reading to find out which one-star fund got lucky.

So who from Morningstar is powering these new ratings? Kinnel confirmed that Eric Jacobson and Miriam Sjoblom are on the fixed income committee, Dan Culloton is on the domestic stock one, and Gregg Wolper is on the international stock one. Fund analysis director Karen Dolan and Kinnel himself are on all three committees -- Kinnel heads each one.

As for the ratings themselves, InvestmentNews, Reuters and the Wall Street Journal all highlight the fact that Davis Selected Advisors' Clipper Fund, is the sole one-star fund that won a gold-rating under the new system.

"The fund had a really bad 2008, there is no sugarcoating it," Dolan told Reuters. "But the team running it has been in place since 2006 and they have low fees."

And Reuters wonders why the fast-growing, top-performing, $12.8-billion DoubleLine Total Return Bond Fund, PMed by bond investing superstar Jeff Gundlach, received only a "neutral" rating from Morningstar. The fund, which is too new to have a star rating yet, has returned 8.67 percent year-to-date, Morningstar told Reuters, 300 basis points ahead of its peers.

"You just don't get a yield over the last 12 months like that without taking on risk," Dolan said. "The layer of risk the fund is taking gives us pause."

How's the press reacting to the new ratings? Dan Wiener of the Independent Adviser for Vanguard Investors wrote yesterday that he has "to admit to being completely underwhelmed by Morningstar's latest attempt at 'rating' funds on qualitative factors after having spent years defending the utility or futility of its quantitative star rankings."

Mark Jewell of the Associated Press notes that, "based on recent results, Morningstar appears to be able to spot the winners more often than not" when it comes to funds designated "analyst picks", the qualitative system that underlies the new analyst ratings.

Here's a list of the headlines so far:

  • "Morningstar's Phillips Talks to AdvisorOne About Launch of New Analyst Ratings for Funds" (AdvisorOne);

  • "Morningstar's new fund ratings may make investors less starry-eyed over past performance" (Jewell for the AP);

  • "Morningstar's new mutual fund ratings, at a glance" (also the AP;

  • "Morningstar Makes Move to Rate Mutual Funds Like Stocks" (the International Business Times);

  • "Morningstar launches forward-looking fund ratings" (INews);

  • "Clipper Fund gets gold in new Morningstar rating" (Reuters);

  • "Marketing Trumps Utility in the Morningstar Olympics" (Wiener for the Independent Adviser for Vanguard Investors);

  • and "Morningstar Unveils a New Fund-Rating System" (WSJ). 

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