Morningstar to Revamp Fund Categories
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Monday, April 07, 2003

Morningstar to Revamp Fund Categories

In the coming months, Chicago-based Morningstar plans to launch 11 new fund categories and change the name and, or, definition of eight others, confirmed Russ Kinnel, director of fund research at Morningstar. As part of this major upgrade, the fund tracking firm also intends to eliminate the Domestic Hybrid category, which includes balanced funds.

The category additions include Conservative Allocation, which is slated to include funds with more than half of their assets in fixed-income and 20-to-50 percent in equities, and Moderate Allocation, which is to house those with 50 - 70 percent of assets in stocks and more than 10 percent in fixed-income.

The Bank Loan category will be added as the number of funds in the group has grown in recent years, while the Bear-market Funds category is to be created due to the distinct trading criteria and resulting performance levels of such vehicles, according to Kinnel. As bear-market funds tend to invest heavily in short positions, they have found favor among investors in recent years. Still, such funds will not receive star ratings due to their relatively modest numbers.

Another new category will be High Yield Muni funds, which will include funds with at least half their holdings in municipal bonds that are either not rated or carry sub- triple B ratings. Other changes in the muni-fund arena include new state-specific categories for Florida, Pennsylvania, Massachusetts, New Jersey, Ohio and Minnesota funds, according to the article.

Morningstar is also updating the names of two foreign-fund categories. The International Hybrid and International Bond categories are expected to respectively emerge as the World Allocation and World Bond categories.

Meanwhile, the foreign-stock funds category likely will be revamped in the future, after changes to the foreign style-box features are completed, said Kinnel. Morningstar tends to tweak and adjust its fund categories from time to time to allow for more accurate descriptions and comparisons.

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