Morningstar, Lipper Re-categorize Foreign Funds

On the heels of success in categorization with U.S. funds, Morningstar has announced an October launch for a foreign funds classification system that the company hopes will aid fund-owners in investment decisions.

The five categories will be large-cap value, large-cap blend, large-cap growth, small/mid-cap growth and small/mid-cap value.

"We believe this new structure, which matches closely to our domestic-stock category structure, is better designed for choosing funds and building portfolios," Morningstar Managing Director Don Phillips said in a statement,

Lipper’s program, which will be implemented by January 2004, is modeled after the US Diversified Equity matrix, the company’s classification system that groups funds based on the characteristics of its holdings rather than ambiguous language sometimes confusing to customers.

Robin Thurston, Lipper’s VP and global director of research, has said of the new system, "The new level of granularity will make comparisons between funds much more valuable." Lipper’s system will take its four current categories, which are International, International Small-Cap, Global and Global Small-cap, and re-classify them using the new style/market-cap matrices. Those categories currently account for more than $300 billion in assets.

Firms that prefer Lipper’s current classification system will still have it available if they choose, the company said.

The move follows a similar move by Lipper in late July to retool its own international classifications. Morningstar says it made the move to combat the increased specialization in recent years of the foreign-stock mutual fund market. That, coupled with investors’ growing tendency to invest in smaller foreign companies, made a decision that would help the investors understand differences among foreign funds much as they do domestic funds a no-brainer.
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