Investors who enter the mutual fund market are often confronted with a bewildering array of information and jargon that leaves them unsure of where to begin. Mutual fund websites are filled with information about large cap funds, small cap funds, sector funds, alpha, beta, style boxes and other esoteric concepts.
Brokers and financial planners readily recommend any number of funds and fund families for their clients, but some investment companies have much better track records than others. So where can customers go to get sound, unbiased information about a given fund or fund family? Read on to find out.
SEE: Morningstar Fund Report
A Definitive Resource
For decades, Morningstar has been regarded as the premier source of information on mutual funds in the financial industry. The first mutual fund sourcebook was published in 1984, and this resource has come to be used worldwide by millions of investors and thousands of financial advisors. Morningstar ranks, rates and analyzes thousands upon thousands of mutual funds, both load and no-load, as well as variable annuity subaccount funds. One of the major tools that Morningstar offers to investors is its one-page fund fact sheet. This sheet is packed with pertinent information about a given fund that allows investors to quickly evaluate its potential. Some of the data featured on this sheet includes:
Morningstar Style Box
This common tool classifies mutual funds into one of nine different categories, with separate sets of categories for equity and fixed-income funds. For example, a stock fund could be classified as a large-cap growth fund or a small-cap value fund, depending on its capitalization and investment objectives.
Every fact sheet lists the fund's contact information, inception date, total assets under management and minimum initial and subsequent purchase amounts at the bottom of the page, along with a complete breakdown of the fund's sales charge schedule (if there is one) for all share classes. All management and 12b-1 fees are included here as well.
Morningstar fund fact sheets always display the average annual total return of the fund for the last three and six months, one, three, five and 10 years, as well as since the fund's inception. These numbers are run both with and without any pertinent sales charges being assessed for all classes of retail shares (and even institutional share classes as well in some cases). Cumulative total return numbers are also posted. Quarterly returns are shown for the previous five years.
Growth of $10,000
Each report contains a graph that charts the growth of a $10,000 initial investment made at the inception of the fund until the present, factoring in all sales charges and other expenses.
Star and Category Ratings
These are often the first indicators that investors look at when choosing a fund. The star rating ranks funds according to past performance within four broad asset classes, while the category rating is a more specific comparison of funds within the same style box.
Fund Composition and Holdings
A percentage breakdown of the individual security holdings within the fund by both asset class and sector is listed in detail. Each fact sheet also lists the fund's Top 10 holdings by company. Bond and other fixed-income funds also contain a breakdown of the average duration and maturity of the individual securities held by the fund.
Every fact sheet prints the stated investment objective of the fund and the general investment strategy that will be used to achieve this objective.
This portion of the fact sheet offers a brief commentary on the fund and the performance of its portfolio managers, and generally offers an opinion of the future performance of the fund for both the short and long term.
Morningstar analyzes a number of technical indicators for each fund, such as its Sharpe ratio, beta, alpha and other mathematical quantifications of the fund's risk, volatility and reward. These are always listed in a separate section as well.
Morningstar went public in 2005. Since then, the company has continually refined and expanded its suite of products and services. Its services now extend beyond simple analysis and includes sophisticated money management software for financial planners and X-ray portfolio analysis services that allows planners and investors to see the potential overlap of holdings within their investment portfolios, adding additional tools to investors' arsenal.
Mutual Funds & ETFsCompare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
Mutual Funds & ETFsTake a closer look at the Lipper rating system for mutual funds and exchange-traded funds (ETFs), how investors should interpret it, and some possible criticisms.
Bonds & Fixed IncomeThis simple ratio will tell you how much that extra return is really worth.
Investing BasicsBeta says something about price risk, but how much does it say about fundamental risk factors? Find out here.
InsuranceFind out the differences between mega-, large-, mid- and small-cap stocks and how each suits different investing styles.
Options & FuturesLearn how to generate higher returns in your portfolio while keeping the same risk profile.
RetirementFixed, variable and indexed annuities offer different features. Find out which one fits your needs.
InvestingWhile stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
Mutual Funds & ETFsThe coveted compensations of hedge fund managers are protected by barriers of entry to the industry, but one recent startup is working to break those barriers.
RetirementWe discuss the advantages of seeking professional help when it comes to managing our retirement account.
Performance measuring and benchmarking are constantly changing in the telecommunications sector because of the evolving dynamics ... Read Full Answer >>
A mutual fund is a pool of stocks, bonds or other funds from which an investor can purchase shares. Whether the mutual fund ... Read Full Answer >>
The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>