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Rekenthaler Report

About Morningstar's Fund Classifications

Examining the four underlying principles of our process.

From Names to Holdings
A reader asked me how Morningstar determines its fund categories. Not the definitions, but instead the underlying process.

The first decision when creating a fund-classification system is whether to group funds by their names or by their holdings. For many years, names prevailed, because no other approach was possible. This often proved confusing. Equity-income funds might hold solely dividend-paying stocks, or they might blend stocks and bonds, so that they most resembled balanced funds. The two types of funds did not belong in the same category--but were so placed.