Morningstar has released ratings changes for several key mutual funds used to fund retirement.
Morningstar rates mutual funds on their ability to outperform markets on a risk-adjusted basis over the long term. The Chicago-based firm has five tiers to their rating: three positive ratings, called the Morningstar Medalists (Gold, Silver and Bronze), and a neutral and negative rating.
Several of the biggest names in the 401(k) industry received rating changes in April. Blackrock Capital Aggregation fund was upgraded to Bronze from neutral. Diamond Hill small-cap fund was upgraded to gold from silver.
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American Century Investments Growth fund was downgraded to neutral from bronze. JP Morgan's Research Market Neutral's Fund was downgraded to neutral, as were two Pimco funds.
All told, Morningstar analysts upgraded six funds and downgraded eight. As of the end of April, 163 US funds had a Morningstar rating of Gold, 288 had a Silver rating, and 312 funds were rated Bronze. Neutral ratings were applied to 358 funds, and negative ratings to 43 funds.
Morningstar's Analyst Rating projects a fund's performance going forward, as opposed to simply gauging past performance. A positive rating of Gold, Silver or Bronze means the rating agency's analysts expect the fund to outperform its peer group over a full market cycle.
Some plan sponsors grant enrollees greater latitude than others in adding to the mutual funds offered in their program. About 60 percent of 401(k) assets are held in mutual funds, according to the Investment Company Institute.
Morningstar's website says their Analyst Ratings are not "market calls," and that they are not meant to replace advisors own due diligence as they direct the retirement savings of their clients.
Retiring baby boomers will have greater investment freedoms when rolling over their 401(k) plans into IRA accounts, which can allocate retirement savings in mutual funds other than those offered in their employers plan.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
