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This month, instead of looking at individual funds, I
am going to stand back and look at the big picture of
Morningstar Analyst Rating performance.
Each month at the top right of the facing page, we
display the batting averages for Gold-rated funds
over the trailing three-, five-, and
10
-year periods. We
launched our Morningstar Medalist ratings in
November
2011
, so for our five- and
10
-year figures,
we use Analyst Picks, which were the predecessors
to Gold-rated funds. The batting averages tell you
what percentage of Gold/Analyst Pick funds outper-
formed their peer groups during the time they
were a Gold/Analyst Pick. We time-weight the figures
so that a fund that was a Gold/Analyst Pick for
10
years counts for twice as much as one that was
a Gold/Analyst Pick for five years. We show
you the total percentage that outperformed and
the percentage that finished in the top quartile.
As you can see, our
10
-year track record is pretty strong.
All asset classes have Gold-rated funds that outper-
formed
70%
of the time or more, with balanced funds
doing best, achieving an
89%
batting average. You
can also see that more than
40%
of Gold/Analyst Pick
funds produced top-quartile performance for four
out of five asset groups.
For the trailing three- and five-year periods, there are
two areas of disappointment. Only half the muni
Gold-rated funds outperformed during the past five
years and less than half of taxable-bond funds
outperformed over the trailing three years. The main
source of weakness has been that we favor conser-
vative-bond funds, by and large, but those that take
on a lot of risk have done quite well since
2008
.
Another way of looking at performance is to create a
hypothetical portfolio for each asset class, in which
funds go into an equal-weighted portfolio when they
get the Gold/Analyst Pick designation and go out
when they are downgraded or the rating expires. We
can then calculate the growth of
$10
,
000
and
compare with a benchmark. You can see the graphs
displayed to your right.
For U.S. equities, you see that our Gold/Analyst Pick
portfolio had been beating the S
&
P
500
until recently,
as mega-caps have pushed the S
&
P
500
ahead.
However, the recent sell-off has brought them slightly
behind. Currently, the
10
-year return for U.S. equity
Gold-rated funds is
6
.
4%
annualized compared with
6
.
8%
for the S
&
P
500
. If you were to substitute an S
&
P
500
fund like
Vanguard 500 Index
VFIAX
for the cost-
free S
&
P
500
, then there would be almost a dead heat.
For international equities, our Gold/Analyst Pick funds
have a strong record of beating the
MSCI
EAFE
Index. Over
10
years, they have returned
4
.
4%
versus
3
.
0%
for the index. The
MSCI
EAFE
has gained a
bit of ground lately, however, as the index has less in
emerging markets than most actively managed funds.
In taxable bonds (we just use intermediate-bond funds),
our Gold/Analyst Picks have returned
4
.
72%
versus
4
.
64%
for the Barclays U.S. Aggregate Bond Index. Our
Gold/Analyst Picks are also ahead for five years, but
a touch behind for three, which is consistent with what
we’ve seen in the batting averages.
Our municipal-national-bond fund Gold/Analyst Picks
are a hair ahead of the Barclays Municipal Bond
Index. They have returned
4
.
71%
annualized versus
4
.
64%
annualized for the muni index. That’s pretty
good considering the index is cost-free and hard to
replicate. Our Gold/Analyst Picks are also ahead
over the trailing three- and five-year periods.
We don’t have a portfolio performance for allocation
funds because they require multiple indexes.
K
How Have Our Top-Rated
Funds Performed?
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.