Morningstar, Inc., a provider of independent investment research, today said it will launch ratings and in-depth research reports for target-date fund series. Target-date funds are designed to help investors prepare for retirement, and typically invest more aggressively in the decades before retirement and shift their asset mix to become more conservative in the years immediately preceding and following retirement.
“Target-date funds have come under scrutiny in recent months. Disparity in the performance in 2008 among funds with the same target-date caused many to second guess the funds’ investment policies and strategies, leading to the joint hearing before the SEC and the Department of Labor next month,” says John Rekenthaler, vice president of research for Morningstar. “Surprise about these variations in performance reveals the lack of knowledge about this new, fast-growing category of mutual funds. Morningstar’s upcoming research reports and ratings will make target-date funds more transparent, and will help investors make meaningful comparisons and informed decisions when evaluating a target-date fund.”
Morningstar’s target-date fund series ratings and research reports use two qualitative and three quantitative measures and a holistic, peer-based approach to analyzing target-date funds. The five components evaluated by Morningstar analysts are People, Parent, Performance, Portfolio, and Price. A fund series can receive a maximum score of 20 points for each component. Based on the aggregate scores of the five components (with 100 points being the maximum), each target-date fund series earns one of five ratings: Top, Above Average, Average, Below Average, or Bottom. Morningstar will review and update the ratings annually.
Each research report will contain detailed commentary by a Morningstar fund analyst on all aspects of the scoring, as well as additional analysis of non-scored aspects of target-date funds’ structure and components.
The Target-Date Fund Series Rating and Research Reports will be available later this year in Morningstar Principia, Morningstar Advisor WorkstationSM Enterprise Edition, Morningstar Advisor Workstation Office Edition, Morningstar DirectSM, and Licensed Data. Morningstar.com, the company’s Web site for individual investors, will publish the ratings and a modified version of the report.
D.C.