Top Rated Fund Families: A Morningstar Report Card

The fund industry’s biggest firms control more than two-thirds of the industry’s mutual fund assets. But, of course, these fund groups don’t have the same management practices, manager tenure or investment performance.

Morningstar researchers released a study Tuesday that shows how the largest funds vary in these and other attributes.

“Not all of these industry leaders are top caretakers of capital,” the group says. Plus, there are big differences in the fees they charge.

“The study found that among the top-20 firms, those with stronger stewardship practices have delivered better outcomes for fundholders,” said authors Bridget Hughes, associate director of stewardship, and Laura Pavlenko Lutton, director of fund-of-funds research, in their report.

Morningstar’s stewardship grades entail factors like corporate culture, fund board quality, portfolio manager incentives, fees and regulatory history. The success ratios consider how many share classes a fund firm offered at the beginning of a measurement period; Morningstar analysts then tally how many share classes both survived and outperformed their peers, based on category rank and a risk-adjusted category rank.

Read on to see which 10 fund families earned a C, six firms received a B and four fund groups were rated A.

‘C’ Graded Fund Families

Half of the industry’s largest firms get C Stewardship Grades, which Morningstar considers to be the “industry standard:” American Century, BlackRock, Columbia, Janus, John Hancock, JPMorgan, Lord Abbett, Oppenheimer, Principal and Wells Fargo Advantage Funds.

“While there may be pockets of relative strength within these firms’ funds, the stewardship grade measures the fundholder experience across the firm’s funds,” explained Hughes and Pavlenko Lutton. “On average, the firm-level data at the C stewards are worse than those of the firms earning A and B grades, though in some cases, like the average five-year manager-retention rate, the differences between these small peer groups can be quite slim.”

In general, the C stewards have lower Morningstar Success Ratios. None gave longer-term success ratios of 50% or higher, which means that fewer than half of their funds both survived and outperformed relative to category peers on a straight-performance or risk-adjusted basis.

Still, BlackRock, Columbia and Wells Fargo Advantage have gone through corporate mergers during the past 10 years, which impacts their success ratios.

“Firms that merge funds away are at a disadvantage, because they have fewer share classes at the end of the period, which drags the ratio down regardless of how well the surviving share classes performed,” the Morningstar experts said.

‘B’ Graded Fund Families

The six firms receiving B stewardship grades exceed the industry’s standard for care of capital, according to Morningstar: Dimensional Fund Advisors, Fidelity, Franklin Templeton, Invesco, MFS and PIMCO.

“All have notable strengths,” the researchers explained, “but a few weaknesses that surface in the data prevent them from receiving Stewardship Grades of A.”