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Wednesday, September 26, 2012

A Little More on Family Matters

News summary by MFWire's editors

Children really do take after their progenitors, is the point Morningstar reiterates in a Fund Spy piece from last night. Mutual fund analyst Kailin Liu follows up on Morningstar's initial introduction of the Parent category last week, this time providing data to prove that the Parent ratings work. [Read MFWire's coverage here.]

Start with fees. "Lower fees generally increase investors' chances of success," Liu writes, where lower-cost funds consistently outlive and outperform higher-cost funds. To wit, all firms that receive Parent ratings and with Positive ratings have a Firm Average Fee Level of 49. Meanwhile, Firms that receive Neutral or Negative ratings have FAFLs of 53 and 65, respectively.

Analysts also favor long-tenured management teams and manager retention — where tenure measures manager turnover on the fund level, and retention measures manager turnover at the firm level. Positive-rated parents companies tend to boast longer average firm tenure and manager retention than Negative or Neutral-rated firms.

Finally, Positive Parent companies invest considerably more in funds they ran than Neutral or Negative companies.

And that's why the Parent category matters.  

Edited by: HFD


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