Stars secure sales, says fund researcher

(May 3, 2004) Mutual funds rated highly under Morningstar Canada’s star system are also dominating sales, says research group Investor Economics.

Funds with four- or five-star rankings accounted for 54% of gross sales in the first three months of 2004, Investor Economics says in its monthly Insight report.

The sales figures are more impressive when redemptions are factored in to produce net flows. “The 108 funds with a five-star rating at the end of 2003 accounted for nearly 92% of all net flows,” the report says.

By contrast, funds with three stars or less collectively have net redemptions, losing $2 billion.

Morningstar’s fund rating system, introduced in 2000, compares past performance of funds within mutual fund categories on a risk-adjusted basis.

The ratings are calculated based on monthly performance over three-, five- and 10-year periods. Funds less than three years old are not rated.

Morningstar says the star rankings are intended as a first step in the fund evaluation process. “A high rating alone is not sufficient basis for investment decisions,” Morningstar adds.

Currently, 249 funds in Canada’s 4,500 strong fund universe have five-star ratings. Mackenzie dominates the list with 23 five-star funds, followed by AIM Trimark with 11.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com