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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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M* Is Doing What ?

FYI: Morningstar launching their own funds feels a little bit like an
Olympic judge deciding to participate in the games — it's weird.
Regards,
Ted
http://www.mfwire.com/common/artprint2007.asp?storyID=55925&wireid=2

Comments

  • Not any weirder than Morningstar accepting ads from the very funds that it is rating. Conflict of interest might be a better term to describe their actions.
  • edited March 2017
    Indeed Ted but that's where the money is. I wonder how long it will take for any of them to reach 5* status. Stay tuned.
  • In fairness to Morningstar, the star ratings are completely statistically based on risk adjusted returns. There is no qualitative assessment there, only how the fund performs numerically. So conflicts of interest are irrelevant with regard to stars. That doesn't mean other conflicts from this news are not a problem, however.
  • Sign of a market top - many funds opening.
    Sign of a market bottom - many funds closing.
  • Sign of end of the world as we know it - M* starting funds.
    Sign it is time to settle on Mars - M* rating its own funds.
  • The change to the focus within the Dividend Investor newsletter foreshadowed the many changes within M*.

    Unfortunately.
  • This news affirms my decision not to renew M* Premium when June arrives.
  • BenWP said:

    This news affirms my decision not to renew M* Premium when June arrives.

    Lucky you! What do I do? I get it for free with TRP account. I die everyday knowing I have it. I ask TRP reduce their ER instead, but they don't listen.

  • msf
    edited March 2017
    See older thread on same subject:
    http://www.mutualfundobserver.com/discuss/discussion/31799/m-makes-bid-to-offer-mutual-funds-for-exclusive-use-of-advisers

    The key, not discussed in the MFWire feed, is that M* is taking a portfolio recommendation that it's already selling to advisers and packaging the whole thing as a single fund. Normally, you'd expect that to be a fund of funds. Instead, M* is hiring the managers of the recommended funds and having them run the combined fund directly.

    Currently, advisers interested in offering the M*-recommended portfolio to clients have to go out and buy the funds themselves. With the new prepackaged fund, they get essentially the same portfolio. They just don't have to assemble it themselves.
  • @msf. Yes but that difference is important no? Schwab also offers its own funds but it does not rate its own funds. But I'm still a little confused if these M* offerings are bonafide mutual funds or not.
  • Schwab isn't selling advice on which funds to buy. To have a conflict of interest, there have to be two conflicting interests.

    Morningstar rates funds, but also sells recommended portfolios of funds. It's motivated to rate the recommended funds highly to make its advisory service look intelligent and valuable. There's your conflict of interest. Fair ratings vs. advisory services.

    All M* is doing now is repackaging what they're already selling. You don't have to go out and "hire" their recommended managers (by investing in those funds); M* has done the hiring for you, cheaper than you could do yourself. Whatever conflict of interest exists didn't come from the repackaging.

    These are real funds in the same way that many funds for internal use are real funds. Not sold to individuals, but 1940 Act funds, with registrations, disclosures, prospectuses, annual reports. At least that's my understanding. They won't get analyst ratings (that would be a new conflict of interest).
  • @msf okay so then you agree with what I'm saying. Schwab is not doing any wrong and there is no conflict of interest. With M* there is.

    Besides M* used to rail against funds-of-funds charging an overlay of fees. How does it now become okay when M* is doing it and how much is M* charging for this "service".

    The real problem is M* has a monopoly on fund ratings. Unless some big financial industry guns come out and seek alternatives, it can do whatever it wants.
  • I'm not agreeing that these funds are creating a conflict of interest. M* has been selling advice for years. If that didn't bother you, neither should this.

    M* is foremost a data collection service. You want to know how a fund performed today, or how much it costs, or what's in its filings, M* has that data. It aggregates that data within fund and across fund.

    Within fund - what's its YTD, 1 year, 3 year performance. How does that look graphically. Across funds - show me the same data side by side for two funds, for three funds.

    Then it takes this data and applies a small amount of judgment, by creating categories and classifying the funds. This is a thankless task; it's virtually impossible to build a classification system for anything without avoiding corner cases. Here, some funds that don't fit neatly into on category or another.

    But they do a decent job, and they are not without a competitor. If you don't like the way M* has classified a fund, you can cross check with Lipper. Now S&P (the last time I looked) takes an entirely different approach. It doesn't try to describe what a fund holds, it tries to describe how a fund behaves. So you could have a large cap value fund being classified as small cap blend, simply because it's been moving that way. Different approach, one I'm not fond of, but certainly a form of competition as well.

    The star ratings are purely mechanical based on these classifications. As far as subjective ratings are concerned, M* has competition. Go read Zacks. Then you can take another look at M* and consider who is really looking into funds diligently.

    These are not funds of funds. Reread what I wrote - M* is hiring the managers, not buying the funds.
  • I wasn't referring to star ratings. I was referring to analysts ratings. So if these are not mutual funds then the only problem I have with M* is based on first principles and not these new "offerings".
  • Zacks... Ha. Not sure how they even exist. Their diligence on funds is absolute horse****.
  • If there is a way to make money, rest assured M* will do it. Sadly, I believe that is the most important thing for them. We should accept this fact, whether or not there is a conflict of interest. It's always about money. They are not going to enter this new business line if they expect to lose money. M* never does that. Unfortunately, they are pretty much the one source for the detailed analytics so many of us need (or think we need).
  • JoJo26 said:

    Zacks... Ha. Not sure how they even exist. Their diligence on funds is absolute horse****.

    Tell me about it. You know how Yahoo and many other media outlets follow the practice of interspersing "real news" with advertisements with a vaguely and barely noticeable "Sponsored" indicator in gray? I make it a point to notice and steer clear.

    Recently, however, I saw an article from Zacks about "best mutual funds" and it did not have "Sponsored" indicator on it. So it seems to me media has now dropped all shame, if they had any left. In this case, the "drug" and the "peddler" are both to blame. However, it is WE who will be "punished" if we become "users".
  • BobC said:

    If there is a way to make money, rest assured M* will do it. Sadly, I believe that is the most important thing for them. We should accept this fact, whether or not there is a conflict of interest. It's always about money. They are not going to enter this new business line if they expect to lose money. M* never does that. Unfortunately, they are pretty much the one source for the detailed analytics so many of us need (or think we need).

    Yes. Sometimes you succeed simply by being first to the party. However, I always dream of the day when they will be "Blockbustered" or "Kodaked". To be realistic however, they might only be "Philip Morrissed" and will continue to exist even after nuclear winter, right after death, taxes and cockroaches.
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