Morningstar to introduce ratings on target date funds in 3Q

Two qualitative and three quantitative measures to be used

May 28, 2009 @ 12:44 pm

By Caitlin Mollison

Morningstar Inc. will launch ratings and research reports on target date fund series in the third quarter, according to John Rekenthaler, the firm's vice president of research.

The impetus for the new ratings and reports is the scrutiny that the funds have come under in recent months, which will culminate in a joint hearing before the Securities and Exchange Commission and the Department of Labor next month, he said during a press briefing today at the Morningstar Investment Conference 2009 in Chicago.

"The backdrop there is a lot of concern about what's going on in the target date industry," Mr. Rekenthaler said.

The ratings will use two qualitative and three quantitative measures and "a holistic, peer-based approach" to the analysis, according to a statement from Morningstar of Chicago.

Those components are "people, parent, performance, portfolio and price."

Morningstar will use ratings similar to its star rating system, though perhaps not using stars, Mr. Rekenthaler said.

The firm will use "five something," he said, adding that "the spirit is the same as the familiar Morningstar star ratings."

Each research report on a target date fund series will be four pages long, with the summary on the first page aimed at employees.

"The four-page report is for plan sponsor or adviser use," Mr. Rekenthaler said.

This marks the first time that Morningstar will rate target fund series.

The firm already uses its star rating system for individual target funds with at least a three-year performance history.


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