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M* Changes in Classification of Some Multi-Asset Funds

yogibearbullyogibearbull
in Fund Discussions
M* article, https://www.morningstar.com/articles/1095429/morningstars-allocation-categories-get-an-upgrade

This is a good development. Classifying allocation/balanced and multi-sector funds by new MPRS (vs old classification by nominal equity) will fix some of the M* misclassifications I have pointed out in the past by using another method (Effective-Equity).

I see on M* fund pages that the new classifications for affected funds are already indicated on the Performance, Risk and Portfolio tabs (but the Quote tab still shows the old classifications). So, we are literally seeing the rollout of this new classification.

I don't know if the MPRS value will be shown in some tab (Risk tab would be the most appropriate) after the monthly fund updates in early-June. I think that it should be shown. But the bottom line is that it is being used already.

Some details related to MPRS and Effective Equity are rather technical, but those interested may check them here,
https://ybbpersonalfinance.proboards.com/thread/2/effective-equity?page=1&scrollTo=648

Comments

  • CrashCrash
    +1.
  • shipwreckedandalone
    M* Use Portfolio....Equity....Historical for quick reference to changes.
  • shipwreckedandalone
    Any changes to well known funds?
  • yogibearbullyogibearbull
    edited May 2022
    Yes, that nominal equity % over 5 yrs has carried over from old to new M* pages. But that doesn't explain, for example, OAKBX having 60.78-71.04% nominal equity range, but then having new MPRS of 92.97% (reference about 100% for SP 500) and Effective Equity of 85.96% (reference 100% for SP500). So, the devil is in the details of types of stocks and bonds held and also allocation moves (untimely?). I would have bumped OAKBX category from 50-70% 2 notches up to 85%+, but M* may have gotten cold feet in making hard application of its new measure.
  • yogibearbullyogibearbull
    Addendum, 5/30/22. For the 3 funds in the M* example, FKIQX (nominal equity 38.59%, new M* MPRS 68.81%, Effective Equity 63.67%), RBBAX (20.44%, 44.21%, 44.75%), ACEIX (63.47%, 88.26%, 82.42%), both M* MPRS and Effective Equity systems lead to 1-notch bump ups in their respective categories. For OAKBX (61.20%, 92.97%, 85.96%), both systems would indicate 2-notch bump ups, but M* did only 1-notch bump up in its category. For FAIRX (88.47%, 110.27%, 132.21%), M* old and new categories don't make sense. It seems that regardless of the new M* MPRS data, M* has done just 1-notch bump ups and that may have been a business decision. In these evaluations, all data used are to 4/30/22 (M*, PV).
  • Observant1
    Categorizing allocation funds primarily on their stock allocations was overly simplistic.
    The Morningstar Portfolio Risk Score (MPRS) is a much-needed improvement which provides investors enhanced fund risk information.

    From the article:
    "The funds most impacted by the enhancements to our categorization process are those with large allocations to below-investment-grade credit, convertible bonds, or very concentrated portfolios."
  • yogibearbullyogibearbull
    I found 2 M* MPRS documents - Methodology and Empirical Analysis from October 2021. Both are link-downloads only.

    MPRS Methodology Link-Download

    MPRS Empirical Analysis-Download
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