The information may be the same, but all things are not equal when it comes to providing investors with fund data.
Morningstar of Chicago, and Lipper and Standard & Poor's, both of New York, all have their eye on the same piece of the pie, and all three claim to be leaders in one way or another when providing data to investors.
Mutual Fund Market News asked the trio to detail their core mutual fund products and services. From there, we conducted interviews with representatives from each company, posed a series of questions asking each to critique their own strengths and weaknesses, as well as those of the competition, and went one step further to speak to consultants.
You've Seen One Number. . .
Geoffrey Bobroff, president of Bobroff Consulting in East Greenwich, R.I., said that none of the companies has made itself the clear leader in the space. "Their data is probably pretty comparable," he said, noting that deciding which one to use basically comes down to personal preference.
"The problem is the marketplace is large enough that all four can survive and survive nicely," he said, including Weisenberger/Thomson in the mix as well. Weisenberger, a Rockville, Md., division of Thomson, publisher of this newsletter, failed to provide the requested information by press time.
"I don't think any one is perfect," Bobroff said. "Lipper is used more institutionally, both by institutions and fund groups," he said, adding that Lipper data is also used more in the brokerage community. Morningstar is more widely used by individual investors, financial advisers and also some brokerage firms, he said.
"S&P is more of a latecomer to the party," Bobroff said.
Predicting the Future?
But, some differences exist in the ratings systems, said Bobroff, noting that Morningstar's process is based on past performance and risk, while both Lipper and S&P fancy themselves as being more "predictive."
However, Chip Roame, managing principal of Tiburon Strategic Advisors in Tiburon, Calif., said he sees Morningstar as the leader. "Morningstar seems [to be] the leader in packaging that data and making things user friendly," he said, acknowledging that all these companies "fundamentally have the ability to produce the same products."
Roame ranked S&P second and Lipper third of the three. "Lipper owned this business 10 to 12 years ago, but Lipper faded and didn't stay on the cutting edge of consumerism. They didn't package what they did in user-friendly formats," he said.
However, it isn't all bad news for Lipper in Roame's eyes. Lipper has recently done an about-face and is "doing a lot of good things" and offering a lot of new products, he said. "When the market picks back up, they may do exceptionally well. It seems like they have a good strategy in a bad market. They need to wait it out."
While Roame may have provided a ray of hope for Lipper's future, the present isn't looking so bright, according to a recent survey his company conducted. Tiburon's "Best Practice Survey" of 3,000 advisers doesn't even show Lipper on the radar screen of those surveyed.
Of those polled in the fee-only channel, 67% said they use Morningstar products, while 18% use S&P. Another 10% said they use Weisenberger and 22% Value Line of New York. Lipper didn't register in the top 10 on the list. Those surveyed rated their satisfaction with Morningstar, on average, an 8.1 out of 10. Value Line came in second with a 7.6, followed by S&P at 7.4 and Weisenberger at 7.1.
Of data research services, 74% said they use Morningstar, with 20% using S&P. Twenty-nine percent of independent data researchers said they use Weisenberger information and 18% Value Line. Again, Lipper didn't make the top 10 on this portion of the survey, either.
Voters were allowed to vote for more than one company, checking off all the companies they rely on for data. This group rated their satisfaction of Morningstar an 8.2, with Value Line a 7.7 and S&P a 7.5.
Bobroff said that Lipper's move into the intermediary market, with its product launches and its Lipper Leaders, has not really done much for the company - yet. "I have not sensed that they've gotten any traction," Bobroff said. However, he did say that people are not looking for new products of this sort in a bear market, and that when the bulls return, sentiment towards Lipper may change.
"The marketplace isn't ready to accept something new. No one is looking to expand," Bobroff said.
While all three are quick to claim leadership roles in the industry, it is Morningstar that is often viewed as the frontrunner in the mutual fund data wars in the United States, especially in the intermediary market.
And as the leader, the pressure is on the company to keep ahead of the pack and to continue coming up with innovative products to help investors, said Don Phillips, managing director of Morningstar.
"I think we've been a real innovator in the field. Our ratings became widely accepted, which forced the others to develop their own form of them. The Style Box, the way we classify funds, [along with the Star Ratings] have both become industry standards."
"We've seen Lipper copy our fund classification," Phillips claimed. "We've seen S&P copy our Style Box in Europe," he added. "We will continue to find new, innovative ways to better understand funds. We think the real key is fundamental analysis of funds"
Phillips said the company's Web site, www.morningstar.com, is for the individual investor, while its Advisor Workstation is aimed at intermediaries and Data Lab for institutions. "We're the only one of these companies that serves all three markets," he said.
Lipper Looking Up
"Our primary competitor in the U.S. is Morningstar, and outside the U.S. [it] is S&P," said Robin Thurston, global director of research, media and marketing at Lipper. From an institutional perspective, Lipper sees itself as the leader in providing the best products and information to the institutional marketplace, but acknowledges it lags behind Morningstar in other markets. "Clearly, you can put us, from a perception standpoint, second in the U.S., but we are the leader globally," Thurston said of the intermediary market.
Thurston was quick to acknowledge Lipper's perceived shortcomings (some would argue Lipper is not a brand widely recognized by individual investors or their financial planners), but said these are in the past, adding that it has launched several new products in the last year, with the lynchpin component being its Lipper Leaders rating system.
"Perception in the U.S. is that we are not really driven in intermediary areas, but in Europe, we are very strong," Thurston said. He said that the company has historically had a customer intimacy approach, especially in the institutional area, while being less branded in the intermediary space.
"Being a global fund information provider, we've pushed for several years into the other markets around the world," Thurston said. "We have very strong data accuracy. We believe we are the solution provider to the truly global institutions," noting that he believes the Lipper-Barra Mutual Fund Risk Factor and the company's Web application for screening are two eminent products.
Thurston went on to say that Lipper believes it is leading in areas of classification of funds with the Lipper Leaders and that the company's Hindsight product, which analyzes European, Asian and offshore funds, is "clearly a market leader from a functionality stance."
Not So Standard,
Not So Poor
Standard & Poor's said that its core strengths are centered on its content and data and that its depth and coverage are two of the company's core advantages . The company has touted its Asset Investment Management, or AIM, and its Workstation products as ways to perform high-end mutual fund comparisons, as well as provide toolsets to help companies.
S&P has traditionally been tailored around the money management profession, and it has and will continue to make products that are tailored toward it, the company said. While it has been spending a lot of its focus on improving the quality, depth and breadth of its data, S&P said it feels it is competitive in pretty much every area of the fund market data providers.
However, it feels that its standout strengths are in supporting the advisers.
The company also said it rises above the competition with better technology and more frequent data collection. The company maintains that 95% of the fund companies reporting information to S&P provide the data greater than semi-annually, with many reporting much more frequently.
S&P said it expects to improve its mutual fund content data in the future with more portfolio tools.
How They Stack Up
Thurston has some praise for Morningstar, saying that its "visual display of data is strong," but said there are three critical areas where the self-proclaimed leader is starting to slip or has not done well.
"They oversimplify things like ratings and classifications, and that has hurt the investor to some extent. They still don't identify categories like multi-cap," something that Lipper does, he continued.
"The other thing is that they've moved away from their core business, and they are [making recommendations on] managed accounts," selecting funds to go in accounts for advisers. "Clearly, they're going to have some bias in those areas. The ratings systems, as well as the ones they charge for, are going to have a biased affect."
Clash of the Data
Yet another problem that Thurston anticipates Morningstar will encounter is that, in a sense, they compete with certain clients. "They're in key competition with their clients. They provide info to Microsoft, so they're pulling customers away from the people they're providing information to."
As for S&P, they "haven't had that strong of a U.S. presence because they haven't had a desktop product," according to Thurston. "Their key strength has been the work they've done on qualitative analysis, which they have scaled back in recent years. Their global presence has helped them." However, their technology has not been seen as cutting edge, he said.
Morningstar said it sees Lipper in the same marketplace for reports for director and in institutional settings. As for S&P, Phillips said its presence is not deeply felt by Morningstar here in the U.S. However, neither one of them is in all three of the individual, institutional and intermediary marketplaces, Phillips said.
Furthermore, none of the three fund data giants line up in all three of these markets (i.e., individual, institutional and intermediary), although S&P and Lipper have been talking about the individual market, he said
And while Phillips admitted that S&P and Lipper are in the same space as Morningstar, he said he doesn't see much from the competition that is of any added value above what Morningstar offers.
"I don't mean to be disrespectful to the competition, but I don't spend a lot of time on their products. I do think that it is good that they are starting to stir [the pot]. I think it is good for investors to have choice. They want to reach out," Phillips said.
On The Horizon
As for the paths of Morningstar and Lipper, it appears they could be moving in different directions.
"I think increasingly people are going to want to have a very deep tool kit," Phillips said. "They are wanting to have the ability to move seamlessly between all sorts of investing products and tools, to assemble portfolios for their clients."
He said Morningstar will concentrate on nuances of style. "Investors have been able to identify good funds. Even so, people are still assembling bad portfolios. Were trying to come up with new ways of breaking down how a fund is positioned. What's the investment posture of the fund?" he said, noting that overlap and other considerations are things in which investors could use more tools in determining.
As for Lipper, most of the changes have already taken place this past year as part of the company's attempt to capture the intermediary market. Lipper will continue providing these new services, while not straying from its core market, which is institutions.
Now let's wait for the bulls to put the fund data giants to the test to see which of the strategies works best.