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Fund Spy: Morningstar Medalist Edition

On a Roll

How rolling returns can factor into a fund's Morningstar Analyst Rating.

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Morningstar analysts look at a variety of factors when assessing a fund's performances as part of the Analyst Rating process, including rolling returns. To assess rolling returns, start with the trailing decade or a manager's tenure on the fund. Then look at performance over rolling periods during that stretch. For instance, to look at rolling three-year periods over the trailing decade through May 2013, start with performance over the three-year period from June 2003 through May 2006, then July 2003 through June 2006, and so on through May 2013.

Rolling returns can show how consistently a fund has performed relative to its benchmark or category rivals. They also help investors understand a fund's risk/ reward profile. Has a fund's performance zigzagged between its category's top and bottom quartiles, and if so, why? If its rolling returns land near the category average, is that pattern due to its strategy or is it a sign of merely average execution? When used with risk-adjusted performance measures such as the Morningstar Rating for funds, rolling returns help inform what investors could reasonably expect from a fund's performance pattern going forward.

Michael Herbst does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.