Mutual Funds: Data Definitions: Stewardship Grades

 Stewardship Grades

Morningstar’s Stewardship Grades for funds go beyond the usual analysis of strategy, risk, and return. The Fiduciary Grade allows investors and advisors to assess funds based on factors that we believe influence the following:

We assign each fund a letter grade from A (best) to F (worst). Funds are graded on an absolute basis. There is no “curve.”

Morningstar analysts' evaluation of five  factors determine the grade for each fund:

Each factor is worth a maximum of two points, for a total of 10 possible points. Points for each component are awarded in increments as small as 0.5 point. With the exception of Regulatory Issues, the worst possible score a fund can receive in each component is zero. For Regulatory Issues, the minimum score possible is –2.

We assign each fund's overall letter grade as follows:

For ease of use, we translate funds' scores for each of the five individual factors into the following qualitative terms on Morningstar.com:

Morningstar's Stewardship Grade for funds is entirely different from the Morningstar Rating for funds, commonly known as the star rating. There is no relationship between the two.

Regulatory Issues

We examine any regulatory issues at the fund company in the past three years. Serious breaches of fiduciary duty can result in a score of –2; funds with no regulatory concerns receive 2 points. In the event of any breaches, we examine the remedies in place and the scope of and commitment to reform.

Board Quality  

We assess the quality of a fund’s board, looking at the following factors, each worth 0.5 point:

Manager Incentives

We assess two distinct components:

 Fees

 

Corporate Culture

This component looks at a wide range of factors in an attempt to gauge how seriously a firm takes its fiduciary duty to fundholders. Morningstar analysts may consider the following factors, among others: