Morningstar Announces Fund Classification Changes

Morningstar has added two categories and one broad asset class to its proprietary classification system for mutual fund portfolios domiciled in the United States.

A Morningstar news release said the new mutual fund categories are:

  • Global Real Estate: These funds invest primarily in non-U.S. real estate securities, but may also include U.S. real estate securities. Such securities include debt and equity securities, convertible securities, and securities issued by Real Estate Investment Trusts (REITs). At least 40% of the fund’s holdings must be non-U.S. securities. As of June 30, 2008, there were 45 mutual funds and 11 exchange-traded funds (ETFs) in this category.
  • Currency: These funds invest in U.S. and foreign currencies through the use of short-term money market instruments; derivative instruments, including but not limited to, forward currency contracts, index swaps and options; and cash deposits. Morningstar Ratings are not assigned to the funds in this category because their strategies vary so widely. As of June 30, 2008, there were eight mutual funds and 26 ETFs in this category.

According to the announcement, Morningstar is also adding an “Alternative” broad asset class to its current set of five broad asset classes: U.S. Stock, International Stock, Taxable Bond, Municipal Bond, and Balanced. The Alternative broad asset class includes the following categories: Currency, Long-Short, Precious Metals, and Bear Market.

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The new Global Real Estate category is assigned to the International Stock asset class.

“The number of currency funds is growing rapidly, especially among exchange-traded funds, and will be better compared to their peers in this new category,” said John Rekenthaler, vice president of research for Morningstar, in the announcement. “The addition of an “Alternative’ asset class is a more appropriate classification for currency funds, as well as long-short, precious metals, and bear market funds.’

The company said as a result of the new categories, the Morningstar Rating for funds that are assigned to a different category may change because they will now be rated against a new peer group.

The new category assignments were to be available in Morningstar’s Internet-based products Tuesday, and will be rolled out in all Morningstar products by the end of August.

The Morningstar Category Classifications methodology is available here.

First All-ETF 529 Plan Available for Adviser Distribution

Barclays Global Investors (BGI) and 529 plan administrator Upromise Investments, Inc., introduced a 529 college savings plan designed with portfolios that invest exclusively in BGI's iShares exchange-traded funds (ETFs) and targeted specifically to fee-based advisory business.

The iShares 529 Plan is a low-priced, no-load adviser sold option that is available only to fee-based advisers, and developed to meet the needs of advisers who are looking for a transparent and flexible college savings program for clients, according to a news release.

The plan offers three types of portfolios including:

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  • Year-of-Enrollment Portfolios – based on the amount of time until a child enters college
  • Asset Allocation Portfolios – based on risk profile or desired asset allocation
  • Custom iShares Portfolios – based on individual investing choices in domestic equity, international equity, real estate, or fixed income

Advisers can access the iShares 529 Plan through Upromise Investments’ administrative platform. Upromise Investments’ recordkeeping platform and 529 QuickView dashboard provide advisers with easy access to accounts, information, and management options, the release explained.

The iShares 529 Plan is a college tuition savings program sponsored by the State of Arkansas and is administered by the Arkansas 529 Plan Review Committee. Since the plan is sponsored by the State of Arkansas, Arkansas residents will benefit from state income tax deductions of up to $5,000 per taxpayer annually, or $10,000 for married couples (contributions to the Plan in a tax year are deductible from Arkansas state income, subject to recapture in subsequent years in which a non-qualified withdrawal or a rollover out to another state’s 529 plan is made).

Advisers and investors interested in learning more about the iShares 529 Plan can call 1-888-529-9552 or visit www.ishares529.com.

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