Morningstar’s Top-Rated Funds
With more than 10,000 mutual funds to choose from, many investors cringe at the task of making selections.
With today’s special quarterly fund report, The Times and independent research firm Morningstar Inc. provide several ways to evaluate funds--including measurements designed to help investors determine a particular fund’s performance not only overall, but also relative to its peers.
The tables on the next three pages list the best-performing funds in each of Morningstar’s major fund categories over the last three years (ended Sept. 28), as determined by the firm’s proprietary rating system.
That three-year period includes the bull market surge of 1998 and 1999 as well as the bear market that began in March 2000. Only funds with three years of history are included.
Here’s how the funds were ranked:
* First, each fund has a “category rating” (Cat Rtg), a number between 1 and 5, with 5 being the best.
This rating represents Morningstar’s assessment of how well the fund achieved its three-year returns relative to the amount of risk it took, compared with its category peers.
* Second, within each category rating score (i.e., first the 5s, then the 4s, etc.) funds are ranked by actual three-year performance within the category as a whole, expressed as a percentile figure (1 to 100, with 1 being best). That is the “three-year rank” column.
For funds with multiple classes (i.e., A and B shares, etc.) only the best-performing class is included.
To determine order, ties in the first two columns were broken by manager tenure.
* The more familiar Morningstar three-year “star” rating appears in the third column. The number of stars (again, on a scale of 1 through 5, with 5 being the best) is an assessment of performance and level of risk for that fund compared against its broader group: domestic stock funds, international stock funds, taxable bond funds or tax-free (muni) bond funds. See more detailed information below.
A word about categories:
Morningstar does not categorize funds based solely on a fund’s self-description. Rather, it also looks at each fund’s actual holdings to determine category.
The largest groups of funds are domestic equity funds, which Morningstar organizes by the average size (market capitalization) of stocks owned and by a fund’s general investment philosophy. These appear on the next page.
Want to see how other funds shape up? Appearing after these four pages are listings of the 4,500 largest mutual funds, listed by family name from A to Z, with category type, rankings and performance data for each. Also listed are funds’ telephone numbers-most are toll-free. (Some top-rated funds here are not among the 4,500 largest on S10-12. A small number of late-reporting funds are not ranked.)
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Domestic Equity Fund Categories
Most stock mutual funds fall into one of the nine domestic categories as sorted by Morningstar. First the funds are categorized by the average market capitalization of the stocks they own: large, mid-cap or small.
(A stock’s capitalization is the share price times the number of shares outstanding.)
The funds are then categorized by their basic investment objective: growth, value or a blend of the two.
Specific definitions:
Large: The top 5% of the 5,000 largest stocks.
Mid-cap: The next 15% of the 5,000 largest stocks.
Small: The remaining stocks.
To determine whether a fund has a growth, value or blend objective, Morningstar takes the fund’s average stock price-to-earnings (P/E) ratio relative to the Standard & Poor’s 500 index and adds to it the fund’s average stock price-to-book-value (P/B) ratio (which measures a stock’s price versus the underlying company’s per-share net worth) relative to the S&P; 500. The sum of the relative ratios then determines the objective:
Growth: Relative ratio greater that 2.25.
Blend: Relative ratio between 1.75 and 2.25.
Value: Relative ratio of less than 1.75.
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About Morningstar
Mutual fund data in this section are based primarily on information from fund tracker Morningstar Inc.
Morningstar is a privately owned company founded in 1984 to provide investors with information from an independent source for use in making investment decisions. Its “star” rating system is used by financial planners, cited in advertisements and used as a guide by investors and the media.
As the Chicago-based company has grown, its staff of analysts, writers and programmers has introduced print and software products for individual and professional investors. These include the investor guides “Morningstar Mutual Funds”; “Morningstar FundInvestor”; “Morningstar StockInvestor”; CD-ROM “Morningstar Principia Pro Plus for Mutual Funds, Closed-End Funds, Stocks, and Variable Annuities / Life”; and Morningstar’s Web site at https://www.morningstar.com.
To learn more about Morningstar and its products, call (800) 735-0700.
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Comparing Mutual Fund Average Expense Ratios
(tabular data not included for this and the following tables:)
DOMESTIC GROWTH
DOMESTIC BLEND
DOMESTIC VALUE
INTERNATIONAL STOCK AND BOND FUNDS
DOMESTIC BOND FUNDS
SPECIALTY FUNDS HYBRID FUNDS
MUNI FUNDS
LOWEST-RATED FUNDS
