Morningstar Announces New Fund Categories to Better Classify Alternative Investments

CHICAGO, May 9, 2011 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, has added 10 new alternative investment categories within the Morningstar Category classification system—eight for ETFs and two for the broad universe of funds, including U.S. open-end mutual funds, ETFs, variable annuity subaccounts, separate accounts, collective investment trusts, and insurance group separate accounts. The company has also renamed the Long/Short category Long/Short Equity and relocated long/short funds without a predominant equity exposure to the most appropriate new alternative categories.

"We're adding these new categories because of the growing number and heightened usage of alternative funds. It's clear that alternative funds are here to stay. More than 400 alternative mutual funds and ETFs launched in the last five years, including more than 100 last year alone. And investors poured almost $38 billion into these funds in 2010," said John Rekenthaler, vice president of research for Morningstar.  

The new alternative categories for the broad universe of funds are:

• Managed Futures: These funds typically take long and short positions in futures or other derivative contracts according to a trend-following or momentum strategy.
• Multialternative: These funds offer investors exposure to a combination of strategies like long-short equity and debt, managed futures, global macro, and convertible arbitrage, among others.

The new alternative categories for ETFs are:

• Volatility: These funds trade volatility as an asset class and aim to profit from turbulence in the financial markets.
• Trading—Leveraged Commodities: These funds seek to generate a daily or weekly return that is a certain number of times larger than the return of the reference commodity index.
• Trading—Inverse Commodities: These funds seek to generate a daily or weekly return that is a certain number of times larger than the reference commodity index but in the inverse, or opposite, direction.
• Trading—Leveraged Debt: These funds seek to generate a daily or weekly return that is a certain number of times larger than the return of the reference fixed-income index.
• Trading—Inverse Debt: These funds seek to generate a daily or weekly return that is a certain number of times larger than the reference fixed-income index but in the inverse, or opposite, direction.
• Trading—Leveraged Equity: These funds seek to generate a daily or weekly return that is a certain number of times larger than the return of the reference equity index.
• Trading—Inverse Equity: These funds seek to generate a daily or weekly return that is a certain number of times larger than the reference equity index but in the inverse, or opposite, direction.
• Trading—Miscellaneous: These funds seek to generate a daily or weekly return that is a certain number of times larger than the short-term returns of an index in either a positive or negative direction.

Funds populating these new categories come primarily from Morningstar's existing alternative categories, including Long/Short, Market Neutral, Bear Market, and Currency. Funds in the seven Trading categories will not receive a Morningstar Rating, because they are primarily designed as short-term holdings.

The new category assignments are available in Morningstar's Web-based products today, and Morningstar expects to roll them out in all Morningstar products in the second quarter. Morningstar has calculated historical averages for the new categories as well as recalculated historical averages for categories with reassigned funds. The Morningstar Category™ Classifications methodology is available at http://corporate.morningstar.com/CategoryClassifications.

The Morningstar Category classifications were introduced in 1996 to classify funds based on how they actually invest. Rather than assign a category to a fund based on the objective stated in its prospectus, Morningstar analyzes the fund's underlying holdings. Funds are placed in a given category based on their average portfolio statistics during the past three years.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 380,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 5 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services and has approximately $139 billion in assets under advisement and management as of March 31, 2010. The company has operations in 26 countries.

©2011 Morningstar Inc.  All rights reserved.

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Alexa Auerbach 312-696-6481, [email protected]

SOURCE Morningstar, Inc.