Fund Family Scores illustrate how a fund family has performed across five broad asset classes (domestic stock, balanced, international stock, taxable bond, and municipal bond), making it easy to see how a fund family stacks up to its peers.
The Fund Family Score is an asset-weighted average of the Morningstar Rating for the funds within a specific family and a specific broad asset class. It is calculated using total net assets from three years prior and the Overall Morningstar Rating from the most recent month-end for all funds that are at least three years old.
The score is intended as a check on the quality of a firm's management in each asset class. A score of 2 or lower indicates that a firm has performed poorly in that asset class. This may signal the firm has structural problems such as weak research or high costs. Thus, a low fund family score indicates you should be wary of a fund even if the fund itself has a high rating.
Benefits
Some fund families have particular specialties and they perform especially well in one area; other families do consistently well across the board. Our Fund Family Scores were designed to give investors a measure of how well a firm has done as a whole within its broad asset class.
Origin
This data point reflects the Morningstar Ratings from the most-recent month-end. We aggregate the Morningstar Ratings earned by each of the family's funds within each asset class: domestic stock, balanced, international stock, municipal bond, and taxable bond. The numerical score is an asset-weighted average of a firm's Morningstar ratings within those five classes, calculated from the most recent month-end ratings data. We use each fund's net asset level from three years ago in order to reflect investors' actual recent experience at the firm.
For the Pros
The score is not intended to serve as a ranking among fund families. The law of averages dictates that a firm with a lot of funds in an asset class is more likely to have a fund family score near the average (3). Conversely, a smaller firm is more likely to have a score near the low or high end because only a few funds are being measured. If you want to compare fund family scores, be sure to do it using firms that offer a similar number of funds.
Methodology
For the funds of a given family that are in a given asset class and that have a Morningstar Rating, let
N = number of share classes within each broad asset class
M = number of distinct portfolios within each broad asset class
Ai = assets of fund i, three years ago
Ri= current overall Morningstar Rating of fund i
AR = Fund Family Score, the average fund family rating for the given asset class
Ri is an integer between 1 and 5. AR is a decimal number, calculated as follows:
M, the number of distinct portfolios within each broad asset class, is not included in the algorithm. However, Morningstar products will display this count (instead of N, the number of share classes) with the Fund Family Score. The value M tells the user how many distinct portfolios were included in the score.
For Ai, the use of assets from three years prior instead of current assets is designed to reflect investors' true experiences. Asset flows tend to follow strong performance. if the algorithm used current asset figures, it would skew each Fund Family Score, because the best-performing funds would be weighted more heavily with their larger assets, and the funds that recently dropped in size because of poor performance would get less weighting.