Administration February 3, 2004

Morningstar Sends Funds into Style Shift

March 26, 2002 (PLANSPONSOR.com) - Some mutual funds might find themselves in a new performance classification category when Morningstar Inc. overhauls its well-known style box system.
Reported by

The group currently classifies mutual funds into nine categories, by the market capitalization of their holdings, and the investment style of their managers – growth, value or blend.

The firm, which previously used only price-to-book and price-to-earnings to classify the individual stock holdings within a portfolio, which then determined the fund’s overall style, will now use 10 stock classification factors, including price-to-cash flow and historical earnings growth.

The changes will take effect at the end of May and mean new style boxes for about 9% of the funds tracked by Morningstar – 350 funds.

When funds shift into a new performance category, the way they stand up to their competitors also shifts. In one category a fund could lead the pack, but in another it could be in the middle.

«