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Extended performance by Morningstar

Hi all,

Do people here find extended performance computed by Morningstar for newer fund share classes useful?
See a description of the methodology: https://morningstardirect.morningstar.com/clientcomm/Extended_Performance_Methodology.pdf.
Since past performance is not indicative of future performance, does looking at extended performance really matter?
Thanks, Alban

Comments

  • M* extended methodology is used for many reasons. The second on the list is changing its legal structure.

    Last year, QRSIX was moved from one trust run by FPA to another trust run by FPA. Certainly you would not want M* to drop all performance info prior to mid-2023 simply because of a change in legal structure.
    https://www.sec.gov/Archives/edgar/data/1170611/000110465923062212/a23-16089_1497.htm

    Consider the CREF funds. They launched their cheapest share class, R4, on April 29, 2022. Should M* should ignore all performance prior to two years ago? Certainly people who own the shares could look at the R3 shares and mentally calculate the difference in performance due to costs. But why? M* can do the same thing with virtually no effort.

    https://www.morningstar.com/funds/xnas/qcstfx/performance

    If we can learn nothing from past performance, then why expect M* to report it at all, for new or old share classes?
  • edited September 30
    I monitor M* Signature Methodology link where all these documents are found.
    https://www.morningstar.com/research/signature

    My complaints are:

    1. They are now only for download & not for linking (they used to be) as the OP linked from MorningstarDirect. So, if I want to post some document from there, I have to download, upload to PDF Host & then link here.

    2. Some documents are released but not posted for public in a timely manner. For example, M* Categories (US) is a annual update typically released in April. But here is almost October & April 2024 update isn't posted yet. From last year,
    https://pdfhost.io/v/K3mzSxMmx_MStar_Categories_Funds_April2023_091423

    @msf has already mentioned why the Extending Performance is useful - it extends performance histories for newer classes based on an existing older class but adjusted for the ER.

    @jptak
  • Thanks folks! Could it be possible that funds time the introduction of new share classes when the markets are doing well. So then extended performance could help avoid buying a share class, which might look good based on its record, but is part of a fund that has had terrible performance, say over the last 5 years or so.
  • @yogibearbull thanks for pointing that out. Appears there was an oversight and the US and Canadian methodology docs weren't uploaded (the docs for other regions/countries were, however). That's being worked on and hope to have those up on the page shortly.

    @alban What you describe shouldn't be possible inasmuch as the new shareclass getting extended performance is identical to existing shareclasses except for its fee (which is what we simulate pro forma in calculating extended performance). In other words, the new class's pre-fee returns are same as existing share classes and so its net returns should approximate that of the other shareclasses, the difference being the difference in its fee compared to the other shareclasses, if that makes sense.

    Hope this is helpful.

    Many thanks for the feedback and questions. Let me know if you have any follow-ups.

    Kind regards,
    Jeff Ptak
    Morningstar Research Services
  • @Ptak I think I was not clear. Suppose a new share class was introduced 1 year ago. Its one year performance is its own, but its 5 year performance (extended performance) is computed based on the other, older share classes. So the 1 year performance of this share class was good (perhaps because of the timing of its introduction) but its 5 year performance (extended) is bad. This could perhaps be useful to investors.
  • edited September 30
    Thanks @alban. I don't think the picture would fundamentally change in that situation, as the new share class's 5-year return (pro forma) should approximate the 5-year return of the other share classes, any difference explained by fee differences. So the 1-year returns of all share classes would look good and the 5-year returns of all share classes (including the new one which inherits four of those five years from the older share class returns) would look bad. Apologies if I'm misunderstanding.

    Kind regards,
    Jeff Ptak
    Morningstar Research Services
  • @yogibearbull has already started a new thread on this but to (hopefully) close the loop, we posted the updated M* Category methodology doc on our methodology page. Sorry for the delay! https://www.morningstar.com/research/signature
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