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Morningstar Publishes 2011 Mutual Fund Stewardship Grade Report

Last week, Morningstar published its 2011 Mutual Fund Stewardship Grade Research Paper.  This report serves as a checkup on Morningstar's Stewardship Grade methodology and an examination of current industry stewardship practices. Morningstar's stewardship methodology examines five areas that Morningstar anticipates have the most affect on a fund’s stewardship practices: (1) the corporate culture of the fund’s parent organization; (2) the quality of the board of directors overseeing the fund; (3) the fund managers’ financial incentives; (4) the fund’s fees; and (5) the fund firm’s regulatory history. The report describes the quantitative and qualitative inputs, Morningstar's methodology combines to derive the ratings.  These inputs include corporate culture, fund board quality, manager incentives, fees, and regulatory history, each earning individual grades. The scores associated with each section are combined to arrive at an overall Stewardship Grade.

Specifically, the report takes a look at each criterion of the Stewardship Grade methodology to see whether it in fact led to good shareholder experiences such as stronger risk-adjusted returns, better investor (or cash-weighted) returns, lower fees, and/or higher survivorship rates.  Unsurprisingly, looking back at the methodology, Morningstar found that some areas of the methodology have been more predictive than others.

On April 6, the Forum hosted a webinar featuring Laura Lutton, who heads a team of analysts who oversee the Morningstar Stewardship Grades for funds.  Ms. Lutton discussed the 2011 Mutual Fund Stewardship Grade Research Paper, and gave listeners a backstage look at  precisely how the analysts arrive at each fund's ranking.  Members and subscribers will find an archive of the April 6 webinar at:

The full text of Morningstar's  2011 Mutual Fund Stewardship Grade Research Paper is available at: