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Lipper Site Competes Against Morningstar

by Carla Johnson, Investors Offshore, London

15 November 2001


Lipper, a wholly owned subsidiary of Reuters and a leading global provider of mutual fund information and analysis to fund companies, financial intermediaries and media organizations, has launched a new web-site, lipperleaders.com, on which it features top-performing funds it calls Lipper Leaders. Lipper clients manage more than 95% of US fund assets. The firm, founded in 1973 and headquartered in New York, tracks 80,000 funds worldwide through its offices in major financial capitals in North America, Europe, and Asia.

At first, Lipper's Leaders will be chosen according to consistency of return and the ability to preserve capital. Robin Thurston, Lipper's Vice President and Director of Research, said that other criteria will be added within a few months, including tax efficiency, and cheapness in terms of fees and expenses.

Lipper will be competing with Morningstar, which is well established as a fund advisory site. Thurston claims that Lipper's methodology offers a more nuanced framework than Morningstar's mechanical system, which simply awards five stars to the funds with the best risk adjusted returns. The criticism of the star ratings is that they change frequently and merely reflect the fortunes of the markets.

The investor-centered Lipper Leaders program aims to make the fund-selection process more reliable and less confusing, and to help investors tailor their choice to their goals and avoid inappropriate fund purchases. Investors who remain satisfied with their choice of funds are less likely to sell, generating adverse tax consequences for themselves and for remaining shareholders, and are more likely to remain fully invested, capturing the market's future gains.

"The potholes on the investment road seem deeper than ever, and for the first time, the Lipper Leaders program truly puts investors behind the steering wheel where they can see the clearest route," said Robin Thurston. "No fund evaluation tool can help investors avoid risk, but Lipper Leaders can help pair them with funds that are suitable to their needs, goals, and fears."

Funds designated Lipper Leaders for Consistent Return have demonstrated superior consistency and risk-adjusted returns relative to other funds within the same Lipper classification (such as Large-Cap Value or Balanced funds). Lipper Leaders for Preservation have preserved capital better than other funds within a broad asset class (equity, mixed equity, or fixed income funds).

The Lipper Leader designation is straightforward and simple to use, and will fit readily into many advisers' existing asset allocation frameworks, but the scores are based on a sophisticated and transparent mathematical framework. The scores are both quantitative and historical; they do not attempt to represent Lipper's opinion of the funds or of their management style and management team.

All open-end funds with three years of daily performance data (except money market and Ultra Short Obligation funds) have been assigned Lipper Leaders scores ranging from 1 to 5, with funds that score 1 (the top 20%) being recognized as Lipper Leaders.

The list of Lipper Leader funds is updated monthly at www.lipperleaders.com, a website that also contains a variety of educational materials. Additional components of the Lipper Leader scoring process can be found in Lipper's line of fund analysis and datafeed products.

Individual investors and their financial advisers can use the Lipper Leader system to select new funds for a portfolio or evaluate funds that they already hold. Fund companies can use the system in marketing funds that have earned the Lipper Leader designation, highlighting strong funds in all categories, not just categories that have topped the performance charts in recent months. The LipperLeaders.com website offers investors, advisers, fund companies and journalists detailed guidance on using the new system.

Lipper Leader scores are based on relative rather than absolute measures, and do not constitute a recommendation to buy or sell mutual funds. Investors should remember that past performance is no guarantee of future results. Some peer groups and asset classes are inherently more volatile than others, and even Lipper Leader funds in more volatile asset classes or peer groups may not be appropriate for risk-averse investors and those with shorter-term goals.


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