Morningstar Adopts Institutional-Style Analysis

Morningstar is changing the way it looks at mutual funds by using new tools that consider the underlying stocks and asset allocations in a fund's portfolio. 

"My goal is for us to look at a fund portfolio through the eyes of a fund manager," Morningstar's Don Phillips told The Wall Street Journal. "We want to do all we can to tear a portfolio apart and understand its risk."

To increase the depth of fund information, Morningstar's fund analysts will provide more institutional-type analysis by asking more financial advisers what is and isn't working.

"We're going to take institutional-level insights and create streamlined offerings for retail investors," Phillips said. "Financial advisers are in the trenches and know what investors want. We want to use our data to get better results for investors."

Phillips used Fidelity's Magellan Fund as an example of how current analysis can't explain why such a well-known and revered fund lost so many assets in 2008. The Magellan Fund once had more than $100 billion in assets, but has fallen to less than $20 billion.

Morningstar's new analysis explains this fall by showing how the Magellan was underinvested in companies with strong and enduring brands.

"That's a great snapshot of Magellan's performance," he said.