Morningstar released the results of its fourth annual stewardship grades on 1,000 funds, and only two funds, Clipper and Selected American Shares, got a perfect score, indicating that they go far and above just obeying the law and obeying industry norms.

A scant 6% of funds got an A, and 24% got a B and 47% a C. Another 20% were given a D and 3% an F.

“We believe Morningstar is the only company that thoroughly examines a mutual fund’s stewardship for fund investors,” said Laura Pavlenko Lutton, senior mutual fund analyst and head of the stewardship grade committee. “We consider the overall investment and sales culture of the fund firm, the quality of a fund’s board of directors, manager compensation structure and the extent to which management invests in the firm’s funds, the fees the fund charges to investors and the fund firm’s regulatory history.”

Morningstar expanded its stewardship grades this year to put double the emphasis it puts on corporate culture from 20% of the grade to 40%, as the mutual fund research firm believes this sets the tone for the other components. In evaluating a fund’s board of directors, Morningstar requires that it has an independent chairman and 75% independent directors in order to quality for independence. Morningstar also is no longer looking at board members’ workloads but how effectively they oversee the funds they govern.

Whereas in the past, Morningstar used to look at the trend of a fund’s fees, it now concentrates on their current expense ratios and how they compare to their peers. Funds that are in the cheapest quintile of their peer groups get an A, while the top 40% most expensive funds compared to their peers receive Fs. Finally, funds with poor regulatory histories lose points.

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