(1-, 3-, 12 months; 3-, 5-, 10-, 15 years)
This is the fund’s total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1.
Benefits
Percentile ranks within Categories are most useful in those categories that have a large number of funds. For small universes, funds will be ranked at the highest percentage possible. For instance, if there are only two international hybrid funds with 10-year average total returns, Morningstar will assign a percentile rank of 1 to the top-performing fund, and the second fund will earn a percentile rank of 51 (indicating the fund underperformed 50% of the sample).
Origin
We calculate this figure using our total return databases.
Example
If the total return rank (within category) for a three-month period for Baron Asset fund is 1, this indicates that the fund placed in the top 1% of all Small Growth funds for the three-month time period.
When evaluating five-year, 10-year, and especially 15-year percentile rankings, make sure that there are enough funds in the category with five-, 10-, or 15-year returns to make the rankings meaningful. This is especially important in younger categories such as the Diversified Emerging Markets, Pacific/Asia ex-Japan Stock, Latin America Stock, and Specialty Real Estate categories. Fidelity Real Estate has a 10-year total return percentile ranking of 1, but it is one of only three specialty real-estate funds with 10-year records. (Data as of 12/31/98)
For the Pros
You can calculate the category percentile rank by searching in Morningstar Office for all funds within a category (e.g. small value), then ranking by total return for a time period (e.g. one month). Then you take the numerical rank and divide by the number of funds in the category. For example, if there are 232 small value funds and a specific fund is ranked # 116 for the one-month time period, it's category % rank will be 50 (116/232= .50, or 50%).
Performance Within Category
The Percentile Rank by Category figures allow for a direct comparison of a fund’s performance within its Morningstar Category. To assess the relative performance of funds from different investment backgrounds, the total return number offer a method of direct comparison.