Extended performance is the process of lengthening the available data for a younger investment based on a related older share class or a former investment structure. Morningstar provides extended performance for returns, ranks, and ratings for eligible open-end mutual funds when the share class does not have a 3-, 5-, or 10-year actual performance history. To provide comprehensive data for analysis, we use the complete total return stream (actual and extended performance returns for all funds) to display and compute Extended Performance data points in Morningstar Direct.
Extended performance applies in two situations: multi-share and predecessor/successor.
In this instance, a new share class was added to an existing portfolio. All classes share the same underlying securities, but the fees and prices of the share classes differ. To calculate extended performance, we adjust the historical monthly returns of the oldest share class (distinct portfolio) to reflect the increase in fees of the new share class. We adjust returns based on the new fund's actual management and 12b-1 fees. Based on guidelines issued by the SEC, we do not adjust the historical returns if the new share class has lower fees.
When extended performance returns are calculated for a new variable annuity subaccount based on an existing underlying fund, we adjust for the additional insurance fees levied on the subaccount. Following any adjustments, we append the extended performance returns to the actual monthly returns accrued since inception of the new share class. Morningstar Direct users may control whether multi-share extended performance is displayed in the workspace.
In this instance, the structure of the fund changed in some nominal way, all shareholders were transferred to the new investment, and the former structure ceased to exist. Extended performance is not provided if the fund and fees changed substantially. Examples of acceptable changes are closed-end to open-end conversions and change in country of domicile across Europe. No calculation is necessary; the monthly returns of the predecessor fund are appended to the actual returns of the successor. Predecessor/successor extended performance is always displayed in the workspace.
Extended performance is not provided in the following situations.
Significant change in fund regulation: e.g. limited partnership conversion to open-end.
Parallel management while predecessor fund continues to exist: spin-offs, clone funds.
Manager moves to a new fund: manager can not transfer performance record.
Fund of funds: we will not derive extended performance from underlying funds.
Composite performance: e.g. separate account manager starts open-end fund.