When the mutual fund scandal began, recommendations to investors by Morningstar were simple: Stay away.
But as more settlements between firms and regulators are reached, and more executives are replaced, Morningstar has shifted to a more pro-firm stance, telling investors that the corrective measures firms are taking provide reasons to invest back into the funds, The Wall Street Journal reports.
- As the scandal broke, some fund industry insiders criticized Morningstar for being to quick to tell investors to consider selling shares of funds run by the maligned firms. The Chicago-based research group contended, however, that it was doing its job in an unforeseen and unprecedented time for the fund industry.
Three categories - don't send new money, consider selling and proceed with caution - have been introduced by Morningstar to handle the scandal. The "proceed with caution" tag means that a company may have gotten caught up in improper trading, but has addressed the issue.
Don Phillips, a managing director at Morningstar, said that decisive actions have helped firms clean up their acts. "Our moving quickly has been a reflection of how the companies have responded," Phillips told The Journal. "For us to ignore reforms and wait another six months before commenting would have been a mistake."