The top rated Morningstar funds are divided into categories including dividend, value, growth, large-capitalization, mid-capitalization and small-capitalization. Additionally, within these groups, Morningstar rates fund by classes; for example ABC Fund Class A and ABC Fund Class B. As of the date this article was produced, Morningstar’s top rated funds included 1) AIM Diversified Dividend Fund, 2) Allianz NFJ Small Cap Value Fund, 3) American Century Equity Fund, 4) American Century Mid Cap Fund, and 5) American Century Small Cap Fund. Morningstar rates each of the funds within this category to come up with the highest rated funds.
Before delving into the top rated Morningstar funds it is a good idea to understand what Morningstar is and why their ratings are considered by some to be useful assessments of mutual funds. Morningstar describes itself as an investment research firm that has been around since the 1980’s before mutual funds became the massive industry they are today. Over time the Morningstar product line, reputation and analysis grew with the market making it a leading investment information firms. Having said that, and without further ado, more about the top rated Morningstar funds as of the date of this article are as follows:
I: TOP MORNINGSTAR RATED FUNDS BY CATEGORY
1) AIM Diversified Dividend Instl (DDFIX)
High minimum investment, average risk and return institutional fund as per Morningstar.com. The fund is in the 10th percentile for the 3 years beginning in 2006.
2) Allianz NFJ Small Cap Value A (PCVAX)
A closed fund as of 12/16/09 with billions in assets, above average returns and low risk. 10 year investor percentile rank of 22 within the category as per Morningstar.com.
3) American Century Equity Income Instl (ACIIX)
High minimum investment institutional fund i.e. for financial institutions to invest in. 26th percentile investor return ranking for 10 years with 7.08% investor return.
4) American Century Mid Cap Value Adv (ACLAX)
A no load fund with high turnover and assets in the millions. This fund was incepted in 2006 and has a 52nd percentile investor return rank in 12/09. Considered by Morningstar to have high returns for low risk as per Morningstar’s 11/30/09 data.
5) American Century Small Cap Value Instl (ACVIX)
An institutional fund that has opened and closed to investors more than once. The fund has a high 10 year return and rating with below average risk according to Morningstar.
II: RATING METHODOLOGY
It is important to note these ratings were compiled in December of 2009, are based on data from the previous month, and do not necessarily rank high in dollar weighted returns. In such cases, evaluating the top rated Morningstar funds over a multi year period and in terms of investor returns may be more revealing and of additional use to investors. Moreover, the criteria by which mutual funds can be evaluated vary allowing investors to independently rank funds with Morningstar’s investor tools. Morningstar itself uses 1) a star rating system, 2) year to date return and 3) expense ratio when listing top rated funds. The star rating itself is divided into further criteria that include variables such as risk.
The rating methodology used for the above funds does not necessarily include the same criteria an investor would look for. For this reason additional fund comparison tools are provided by Morningstar to arrive at top rated Morningstar funds for themselves and their specifications. For example, the 1st ranked fund above does not rank in the highest in the 1,3 or 5 year percentile rankings. In other words, the aforementioned mutual funds are not measured using a percent rank methodology which measures fund return against similar mutual funds. The Morningstar tools allow an investor to weight criteria according to importance to them to arrive at ’fund scores’. In other words, this allows investors to customize their investments search by their investment goals, and criteria and not Morningstar’s.