Small funds get less Morningstar attention, says industry watcher

Small mutual funds, like small-company stocks, tend to be overlooked. And fund research giant Morningstar is covering fewer of those small funds than it once did, according to David Snowball, whose Mutual Fund Observer provides insights and commentary about fund investing. Of the 599 funds that have a rating of four or five stars for the past three-, five- and 10-year periods, as well as an overall rating of four or five stars, Mutual Fund Observer found that fewer than 40% (237) have analyst coverage. "As we searched the Morningstar database we found many more in that elite coverage [group] that once had coverage but haven't been covered in five or more years," Mr. Snowball wrote. He concedes that simple economics precludes Morningstar from covering funds where ownership is light and there is little demand for information. "We're committed to covering those investments that are most relevant to investors and that hold a significant portion of industry assets," Mr. Snowball quotes Morningstar in explanation of the funds it covers. Mr. Snowball notes that funds with under $1 billion in assets have a 1-in-30 chance of getting coverage, and that just 195 of the 5,700 (3.4%) funds with under $1 billion in assets are covered.