Many Funds Get Reclassified Under Morningstar's Rejigged System
BOSTON — Simpler, it's not. But Morningstar's new way of classifying mutual funds is more informative.
The Chicago mutual-fund tracker, which provides the data for charts in this report, introduced its new system in November. What used to be called a "growth" fund - often based on how the fund described itself - might now be called "medium blend." The new categorization would mean the typical company in its portfolio has a market value between $1 billion and $5 billion, and that its investment style is in between "growth" (high-priced, fast-growing stocks) and "value" (stocks with low price-earnings ratios).
Just as stock funds are now classified in a dual system (size and style) bonds are classified by both type (corporate or government) and duration (short- or long-term) The charts in this report provide keys to the new system
Morningstar's five-star rating system of funds, (based on both risk and performance) is still in place. But Morningstar has added a second rating system, using numbers from 1 (lowest) to 5, to rank funds within their peer group. Say several technology funds garnered high five-star ratings, in part because that sector is hot. Some of those same funds may have lower ratings within their peer group.
One other big change: International funds, which used to get their star rankings within the same pool as domestic stock funds, are broken out for ratings in a separate category