Head of the class: Morningstar gives Vanguard target-date funds top grade

Morningstar Inc. today launched ratings and research reports for 20 of the largest target date mutual funds — and identified The Vanguard Group Inc. as the best target date provider for investors, based on such criteria as management, fees and performance.
OppenheimerFunds Inc. rated the lowest — a position a spokeswoman for the firm said was undeserved.
“Target date funds serve as the core holding for millions of investors as they plan for retirement — often as the only holding — and are increasingly an automatic default option within defined contribution plans,” Laura Pavlenko Lutton, editorial director in Morningstar’s mutual fund research group, said in a statement. “Our new ratings and research reports are designed to help individual investors, financial advisers and plan sponsors make the best possible decisions when evaluating a series of target date funds.”
Morningstar evaluates such funds on five components: people, parent, performance, portfolio and price.
People and parent ratings are determined by both qualitative and quantitative measures of the funds’ management processes.
Performance, portfolio, and price ratings use quantitative measures to evaluate the quality of the target date funds and the underlying holdings in which they invest, as well as the cost that investors must pay.
Morningstar assigns one of five ratings for each component: top, above average, average, below average or bottom.
Based on the five component ratings, each target date fund group earns an overall rating using the same grade scale.
The Vanguard Target Retirement target date funds employ best practices with low fees, a high level of transparency and prudent, investor-oriented management, according to Morningstar’s research.
Vanguard’s high-quality orientation was an important factor in 2008, when the group’s target date funds performed relatively well despite holding a stock allocation similar to many of its peers, Morningstar said. Vanguard’s long-tenured managers also bolster the funds’ appeal.
Meanwhile, a relatively aggressive asset allocation and severe problems in some of the funds’ underlying bond holdings led to very poor performance in 2008 of target date funds from OppenheimerFunds, according to Morningstar.
Investor losses were further compounded by the steep fees associated with the funds, Morningstar added. Oppenheimer has the highest fees among all target date fund families that Morningstar tracks.
OppenheimerFunds, however, defended its target date funds.
“Our target date funds are designed to offer capital appreciation and income over time,” said Jeaneen Pisarra, a spokeswoman for OppenheimerFunds. “Regarding our funds’ 2008 performance, unprecedented market volatility contributed to the underperformance. We’re disappointed in that and have taken steps to address it.”

Head of the class: Morningstar gives Vanguard target date funds top grade
The mutual fund research company, meanwhile, ranked OppenheimerFunds’ offerings at the bottom of the 20 largest target date funds

David Hoffman

Morningstar Inc. today launched ratings and research reports for 20 of the largest target date mutual funds — and identified The Vanguard Group Inc. as the best target date provider for investors, based on such criteria as management, fees and performance.
OppenheimerFunds Inc. rated the lowest — a position a spokeswoman for the firm said was undeserved.
“Target date funds serve as the core holding for millions of investors as they plan for retirement — often as the only holding — and are increasingly an automatic default option within defined contribution plans,” Laura Pavlenko Lutton, editorial director in Morningstar’s mutual fund research group, said in a statement. “Our new ratings and research reports are designed to help individual investors, financial advisers and plan sponsors make the best possible decisions when evaluating a series of target date funds.”
Morningstar evaluates such funds on five components: people, parent, performance, portfolio and price.
People and parent ratings are determined by both qualitative and quantitative measures of the funds’ management processes.
Performance, portfolio, and price ratings use quantitative measures to evaluate the quality of the target date funds and the underlying holdings in which they invest, as well as the cost that investors must pay.
Morningstar assigns one of five ratings for each component: top, above average, average, below average or bottom.
Based on the five component ratings, each target date fund group earns an overall rating using the same grade scale.
The Vanguard Target Retirement target date funds employ best practices with low fees, a high level of transparency and prudent, investor-oriented management, according to Morningstar’s research.
Vanguard’s high-quality orientation was an important factor in 2008, when the group’s target date funds performed relatively well despite holding a stock allocation similar to many of its peers, Morningstar said. Vanguard’s long-tenured managers also bolster the funds’ appeal.
Meanwhile, a relatively aggressive asset allocation and severe problems in some of the funds’ underlying bond holdings led to very poor performance in 2008 of target date funds from OppenheimerFunds, according to Morningstar.
Investor losses were further compounded by the steep fees associated with the funds, Morningstar added. Oppenheimer has the highest fees among all target date fund families that Morningstar tracks.
OppenheimerFunds, however, defended its target date funds.
“Our target date funds are designed to offer capital appreciation and income over time,” said Jeaneen Pisarra, a spokeswoman for OppenheimerFunds. “Regarding our funds’ 2008 performance, unprecedented market volatility contributed to the underperformance. We’re disappointed in that and have taken steps to address it.”

Related Topics: Morningstar Inc., Vanguard Group