As part of our continued effort to offer robust, relevant fund peer groups to our clients and end users, we are pleased to tell you that our Morningstar European & Asian Category system has been updated.
The Morningstar Categories underpin the Morningstar Rating & Morningstar Qualitative Research and are based on the following principles:
Proper Evaluation: Every category should form a benchmark against which a manager’s ability to add value relative to managers with similar styles can be meaningfully measured.
Transparency: The rules defining each category should be clearly stated such that asset managers and investors can easily determine the rationale for a fund’s classification.
With this round of changes come significant enhancements to the way we address hedged classes that reside in currency-based categories for balanced/allocation and bond funds. We’re extremely pleased to introduce the new approach, which should improve the homogeneity of the categories and allow investors to easily identify funds by currency bias.
Morningstar classifies bond and balanced/allocation funds primarily by currency exposure, as this is a key differentiator in risk/return profiles. Funds with a given currency exposure are then further subdivided by sector, maturity, and credit quality where relevant.
Examples of Morningstar bond categories include EUR Corporate Bond, USD Corporate Bond, GBP High-Yield Bond, and EUR Government Bond. The currency reflects the currency exposure of the fund rather than the base currency of the class, although the two are often the same.
On the other hand, in order to improve internal consistency of the Morningstar category nomenclature and to better reflect the Morningstar category definitions (For Methodology, please click here), we have altered the names of a number of Morningstar categories. Significant changes are as follows:
(1) All currency designators in category names have been changed to the relevant three-letter ISO code, e.g. Sterling Corporate Bond is called GBP Corporate Bond.
(2) The term “Balanced” has been replaced with “Allocation” to better reflect the range of exposures of the relevant funds, e.g., Euro Moderate Balanced is called EUR Moderate Allocation
(3) The Emerging Markets equity, bond, and allocation categories have been pre-fixed with “Global” to reflect the fact that they only include funds with global emerging markets remits.
(4) The term “Real-Estate” has been replaced with Property in all instances.
The total numbers of category are now increased to 257 in Morningstar European & Asian Category universe (for full list, please click here). For Hong Kong market, the related categories are now around 150. The newly added categories include:-
Asia ex Japan Equity
Convertible Bond - Europe
Convertible Bond - Global
Property - Indirect North America
Convertible Bond - Global, EUR Hedged
Convertible Bond - Other Hedged
EUR Flexible Bond
Europe High Yield Bond
EUR Flexible Allocation
GBP Diversified Bond - Short
GBP Flexible Bond
USD Flexible Allocation
Global Bond - Other Hedged
Global Bond - USD Hedged
AUD Money Market
Global Emerging Markets Bond - EUR Biased
Global Emerging Markets Bond - Local Currency
Global High Yield Bond
Commodities - Broad Agriculture
USD Inflation-Linked Bond
Commodities - Broad Basket
Commodities - Industrial & Broad Metals
Other Inflation-Linked Bond
Non-Euro Absolute Return
USD Flexible Bond