Morningstar Makes Collective Investment Trusts More Comparable to Mutual Funds

November 29, 2006 ( - Morningstar, Inc., announced Wednesday it will collect net returns, in addition to the gross returns, for its collective investment trusts and will provide monthly rankings and Morningstar Ratings against a peer group of mutual funds.

Morningstar currently compares collective investment trusts to separately managed accounts, using gross returns to provide a quarterly rating, according to a press release from the company. Under this new framework, which will be implemented in early 2007, investors and advisers will be able to more accurately compare collective investment trusts to mutual fund offerings in retirement plans and will have access to timelier, more transparent information.

“Standard industry practice has been to treat collective investment trusts as ‘separate accounts,’ using gross returns and not to request monthly data from providers,” said John Rekenthaler, vice president of research for Morningstar. “Because these investments are direct competitors with mutual funds in retirement plans, however, we think it’s more appropriate to give them more prominence and put them on a level playing field with mutual funds.”

The new collective investment trust rating will use the same methodology as used in the Morningstar Rating for mutual funds, ranking them against their comparable mutual fund peer group based on risk-adjusted net returns. However, in order to be eligible for a “star rating,” collective investment trusts must provide three years of monthly net returns in addition to portfolio holdings.

With its recent acquisition of the database division of InvestorForce, Morningstar now has data on approximately 650 collective investment trusts (See Morningstar to Acquire Two InvestorForce Divisions for $10M).