Best Fit Index

The market index that shows the highest correlation with a fund over the most-recent 36 months, as measured by the highest R-squared. Morningstar regresses a fund's monthly excess returns against the monthly excess returns of several well-known market indexes.

The following indexes are regressed against each equity fund:

• Merrill Lynch Converted Bonds, All Qualities

• Standard & Poor's 500 TR

• Standard & Poor's Midcap 400 TR

• DJ Wilshire 4500

• DJ Industrial Average PR

• AMEX Gold Miners

• Morningstar Large Growth TR

• Morningstar Mid Growth TR

• Morningstar Small Growth TR

• Morningstar Large Core TR

• Morningstar Mid Core TR

• Morningstar Small Core TR

• Morningstar Large Value TR

• Morningstar Small Value TR

• Morningstar Mid Value TR

• Morningstar US Market TR

• Morningstar Large Cap TR

• Morningstar Mid Cap TR

• Morningstar Small Cap TR

• Morningstar Software Sector TR

• Morningstar Hardware Sector TR

• Morningstar Media Sector TR

• Morningstar Telecommunications Sector TR

• Morningstar Health Care Sector TR

• Morningstar Consumer Services Sector TR

• Morningstar Business Services Sector TR

• Morningstar Financial Services Sector TR

• Morningstar Consumer Goods Sector TR

• Morningstar Industrial Materials Sector TR

• Morningstar Energy Sector TR

• Morningstar Utilities Sector TR

• Morningstar Information Super Sector TR

• Morningstar Service Super Sector TR

• Morningstar Manufacturing Super Sector TR

• Morningstar US Core TR

• Morningstar US Growth TR

• Morningstar US Value TR

• Barclays US Treasury Long

• DJ Wilshire REIT TR

• JSE Gold (USD)

• CSFB Credit Suisse High Yield

• Dow Jones US Financial

• Dow Jones US Health Care

• Dow Jones Utilities Average TR

• Dow Jones Moderate Portfolio

• Dow Jones US Telecommunications

• Goldman Sachs Natural Resources

• MSCI World NR USD

• MSCI EASEA NR USD

• MSCI PACIFIC ex JAPAN NR USD

• MSCI World ex US NR USD

• MSCI Europe NR USD

• MSCI Pacific NR USD

• MSCI AC Far East ex Japan NR USD

• MSCI EAFE NR USD

• MSCI EM NR USD

• MSCI EM Latin America NR USD

• MSCI Japan NR USD

• MSCI AC World NR USD

• MSCI World Metals & Mining USD

• NYSE Arca Tech 100

• Pacific Stock Exchange Tech 100

• Russell 1000 TR

• Russell 1000 Growth TR

• Russell 1000 Value TR

• Russell 2000 TR

• Russell 2000 Growth TR

• Russell 2000 Value TR

• Russell Midcap Growth TR

• Russell Midcap Value TR             

The following indexes are regressed against each bond fund:

• USTREAS Certificate of Deposit 6 Month

• Barclays 1-5 Yr Government Bond

• Barclays 1-5 Yr Govt/Credit Bond

• Barclays US 5-10 Yr Govt/Credit Bond

• Barclays Municipal 10Yr (8-12)

• Barclays Municipal 20YR (17-22)

• Barclays Municipal Bond 3Yr (2-4)

• Barclays US Universal Bond

• Barclays US Long Govt/Credit Bond

• Barclays Municipal California Exempt

• Barclays Municipal New York Exempt

• Dow Jones Moderate Portfolio

• Barclays US Aggregate Bond

• Barclays US Credit Bond

• Barclays US Government Bond

• Barclays US Government Long

• Barclays US Treasury Long

• Barclays Fixed Rate MBS

• Barclays Intermediate Treasury

• Barclays Municipal Bond

• CSFB Credit Suisse High Yield

• Citi ESBI Capped Brady

• Citi WGBI Non-USD USD

• Standard & Poor's 500 TR

• MSCI AC World NR USD

• DJ Wilshire 4500

• Russell 2000 TR

• Merrill Lynch Converted Bonds, All Qualities

Benefits

Both the standard and best-fit results can be useful to investors. The standard index R-squared statistics can help investors plan the diversification of their portfolio of funds. For example, an investor who wishes to diversify and already owns a fund with a very high correlation (and thus high R-squared) with the S&P 500 might choose not to buy another fund that correlates closely to that index. In addition, the best-fit index can be used to compare the betas and alphas of similar funds that show the same best-fit index.

Origin

Morningstar recalculates the best-fit index in-house on a monthly basis.