Morningstar Sends Funds into Style Shift
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.
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