Morningstar is drilling down deeper than ever before when it looks at fixed-income funds, the investment research firm said, announcing the launch of a new fixed-income classification system.
The new system provides a more detailed view of a fixed-income fund’s investments and strategies than the old system did, according to the announcement. The new system also includes sectors for world and emerging market bond funds.
“As many investors found out the hard way in 2008, two bond funds may be in the same category, but have very different holdings and risk exposure,” Morningstar’s vice president of research John Rekenthaler said in a statement. The new system “helps investors to better understand a fixed income fund’s investments and more accurately compare it with other funds in the same category.”
The old system had mapped all the fixed-income elements in a given mutual fund or ETF (or other fixed-income fund) into 13 separate sectors, each of which would fit into one of four “super sectors.” The new classification has three levels, starting with six super sectors (government, municipal, corporate, securitized, cash and equivalents, and derivatives). Below these are 17 primary sectors, which then break down into 72 secondary sectors.
For more information on the new classification methodology, click here.
Danielle Reed writes for Financial Planning.
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