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Morningstar Creates Two New Foreign Categories

On May 1, two new Morningstar international fund categories appeared on the scene: foreign small/mid-blend and India equity.  

Morningstar Advisor, 06/11/2012

This article originally appeared in the June/July 2012 issue of MorningstarAdvisor magazine. To subscribe, please call 1-800-384-4000. 

From time to time, Morningstar creates new categories for mutual funds and investment portfolios. We’d rather not. Our objective is to make it easier for investors to make appropriate investment decisions, and that task would be simpler if they had just a few types of funds to evaluate.

But over the years, fund companies have added more and more variety to their menus, and many of the new options don’t look or behave like the funds populating the existing categories. So, we have been faced with a choice: either leave new types of funds in categories where they don’t fit well, making rankings and other statistics for those groups less useful as a result, or create new categories that have more logic and consistency to their membership.

The latter option is preferable. For that reason, on May 1, two new Morningstar international fund categories appeared on the scene: foreign small/mid-blend and India equity.

The new foreign small/mid-blend category has about two dozen members on the open-end side, not including multiple share classes, along with nine exchange-traded funds. Now, funds such as Vanguard International Explorer VINEX, whose portfolio has consistently landed in blend territory for nearly 10 years, won’t have to be forced into either a value or growth category. Among the crowd in this new group are a few funds that knowledgeable observers might be surprised to see. The managers of Oakmark International Small Cap OAKEX and First Eagle Overseas SGOVX, for example, are known as value-oriented investors. But their funds end up in the new blend group because on average their portfolios have landed squarely in the blend style box over the past three years or longer.

Until recently, there were not enough India funds to merit a category of their own. That changed in recent years. Today, there are 11 open-end funds, 10 ETFs, and three closed-end funds that focus on Indian equities. Putting them into their own group eases the task of making comparisons among them; they are no longer being ranked against funds that could invest across most of Asia. Their former category, Pacific/Asia ex-Japan, now provides more useful information as well. What was once a very heterogenous category has become much easier to navigate, with the subtraction of China-focused funds into their own category in October 2010 and now the migration of the India funds.

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