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The Markets September 9, 2009
Morningstar Gives Vanguard Target-Dates Top Rating
A new Morningstar analysis gave Vanguard Target Retirement target-date funds the highest possible rating for its “best practices and low fees.”
Reported by Fred Schneyer
A Morningstar news release said the fund family’s high level of transparency, and prudent, investor-oriented management helped the investment company garner the top rating among the 20 such families evaluated for their management, fees, and performance.
“Vanguard`s high-quality orientation was an important factor in 2008, when the family’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.”
At the other end of the scale, Oppenheimer received the lowest score of any family examined, according to Morningstar.
“A relatively aggressive asset allocation and severe problems in some of the funds’ underlying bond holdings led to very poor performance in 2008,” Morningstar said. “Investor losses were further compounded by the steep fees associated with these funds; Oppenheimer has the highest fees among all target-date fund families that Morningstar tracks.”
Judgment Criteria
According to the news release, Morningstar looks at 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
both the target-date funds and the underlying holdings in which they
invest as well as the cost that investors must pay.
Morningstar
then 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 series earns an overall rating using the
same grade scale.
"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. Because they play such a pivotal role in today's
portfolios, it's critical for investors to select or have access to a
high-quality target-date fund from an investor-focused fund family,"
said Laura Pavlenko Lutton, editorial director in Morningstar’s mutual
fund research group.