Morningstar Rates Alt Funds

Now alternative mutual funds will be rated in similar fashion to its more traditional counterparts.

Morningstar, Inc. has introduced the Morningstar Analyst Rating and Global Fund Reports for approximately 40 alternative U.S. mutual funds, representing about 75% of the alternative fund universe by assets, according to a press release. Over the next year, the company plans to increase its alternatives coverage to approximately 100 funds.

Initially, Morningstar analysts assigned a Gold rating to one alternative mutual fund, a Silver rating to nine funds, a Bronze rating to seven funds, a Neutral rating to 17 funds, and a Negative rating to six alternative funds.

Nadia Papagiannis, director of Morningstar’s alternative fund research, told Money Management Executive that her firm always intended to rate alternative funds but wanted to assess their pillars slightly differently than traditional managers. For example, Papagiannis said Morningstar will scrutinize the manager processes closely in terms of transparency and repetition but will be  a bit more lax on the managers' parents because not all firms are backed by giant parents.

But Morningstar is not stopping with alternative funds. Going forward, Papagiannis said the firm will begin rating alternative exchange-traded funds. "We have already covered four alternative ETFs," she said.