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Portfolio > Mutual Funds

Morningstar Zooming In On Target-Date Funds

By Janet Levaux

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Morningstar has started work on ratings and in-depth research reports for target-date funds to better serve advisors, investors and others. The reports will be rolled out later this year, the company announced at the 2009 Morningstar Investment Conference in Chicago.

“Target-date funds have come under scrutiny in recent months. Disparity in the performance in 2008 among funds with the same target-date caused many to second guess the funds’ investment policies and strategies, leading to the joint hearing before the SEC and the Department of Labor [in June],” says John Rekenthaler, vice president of research for Morningstar.

“Morningstar’s upcoming research reports and ratings will make target-date funds more transparent, and will help investors make meaningful comparisons and informed decisions when evaluating a target-date fund,” he explains.

The five components evaluated by Morningstar analysts are people/management, parent/fund-company ownership, performance/historic and relative to peers, portfolio/holdings and price/costs to investors. A fund series can receive a maximum score of 20 points for each component. Based on the aggregate scores of the five components (with 100 points being the maximum), each target-date fund series earns one of five ratings: top, above average, average, below average or bottom. Morningstar will review and update the ratings annually.

“Many investors intend to hold their target-date funds for decades and use them as a primary retirement savings vehicle. It’s critical to invest in funds run by companies that have a strong history of putting shareholders first,” Rekenthaler shares.

To view the Fact Sheet, please visit //corporate.morningstar.com/us/documents/MarketingFactSheets/TargetDateRating.pdf

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