Morningstar unveils three new fund categories

Morningstar Inc. has introduced three mutual fund categories to make it easier for investors and financial advisers to do specific searches and more accurate peer comparisons. The three categories are China region, market neutral and aggressive allocation. The research firm evaluates whether it needs new categories on an annual basis and will create a new category if at least 20 funds fit and a substantially different portfolio strategy can be identified, said research director Russel Kinnel. “Sometimes you have funds come and go, and you don't want to hop onto something that seems to be the trend of the moment,” he said. By creating more categories, Morningstar hopes to make some of its existing peer comparisons and categories more accurate. For example, with the addition of the China region category, the Asia group is more accurate. Similarly, the market-neutral category makes the long-short category more accurate. “It will be easier for advisers to find which fund has the lowest cost in that specific category,” Mr. Kinnel said. “It will make all of those little comparisons easier.” The aggressive-allocation-fund category will follow funds that are 70% to 90% invested in stocks. “We saw funds like this before but many of them wouldn't stay to that allocation,” Mr. Kinnel said. The last time that Morningstar added categories was in July 2009, when it added six new commodity categories and four sector categories. Morningstar should also provide specific categories within the target date fund group, said Geoff Bobroff, a mutual fund consultant. Although Morningstar does have a target date fund category, many of these funds don't belong in the same category. “All 2020 funds don't function the same, and it would be helpful to break this down further,” Mr. Bobroff said.