How to Analyze a Fund

TL;DR: Breakdown of the most important factors to consider before you make your next investing decision

Whether you’re a seasoned DIY investor or just getting started, you need to know what you’re looking for in a fund, why that criteria matters, and where to find all the pertinent details. Morningstar Investor is here to help.

Here, we’re contextualizing these key data points within Morningstar’s fund quote pages (in this case, on the Fidelity 500 Index Fund page—it’s been a popular search on our site lately). These pages feature key performance and operations information on individual funds, including portfolio allocations, risk metrics, management insights, and more that can help you assess a fund’s potential strengths, weaknesses, and long-term value. Morningstar Investor subscribers get exclusive access to our complete analysis of the fund, plus expanded performance information.

What’s the overall take?

1. Get the TL;DR...

A glance at the Morningstar Medalist Rating can give you an immediate sense of what you’re getting into. This rating is a forward-looking assessment of an investment strategy, expressed on a five-tier scale running from Gold to Negative. (Want to learn more about the methodology behind his rating? Skip down to #5.)

Nearby, you’ll see stars: the Morningstar Rating for funds, a.k.a. the star rating. It’s a backward-looking assessment of a fund’s risk-adjusted performance compared with peers in its category.

2. ...Plus a few more details

What if the TL;DR had just a little more to it? Check the Quote tab for a high-level overview of a fund’s operations, plus Morningstar’s overall take.

• The top data table provides basic info such as a fund’s current category, dividend yield, overall size, and fees. The Morningstar’s Analysis section provides a preview of the pillar assessments for the fund.
• Performance and Portfolio sections offer insight into the fund’s performance history compared with its peers and a snapshot of its top holdings, respectively.

3. Figure out the fees

Fees directly reduce the return available to investors. And that means a fund’s relative fee level can have a material impact on its ability to outperform peers—so you should probably have a sense of a fund’s fees and estimated taxes. With Investor you can consult the Morningstar Fee Level, which compares a fund’s expenses relative to other funds marketed to similar investors.

Go on, jump down the rabbit hole

Just because we make it easy to get a quick grasp of a fund's potential doesn’t mean we’ll deprive you of all the nitty-gritty details when you want them. With Morningstar Investor, you get unfettered access to additional data and analysis.

5. The backstory on Morningstar Medalist Ratings

Process nerds, this one’s for you: the rationale behind Morningstar Medalist Ratings for funds.

For actively managed funds, Morningstar assigns Gold, Silver, and Bronze ratings to vehicles expected to add value over the long term (accounting for fees and risk). For passive strategies, funds and ETFs that earn our top ratings are expected to deliver alpha that exceeds the lesser of the category median net alpha, or zero, over the long term.

Our analysts consider the following pillars when designating these ratings: Parent (the parent organization that manages the fund), People (the managers who make key decisions), and Process (the strategies used, which ideally are both effective and repeatable).

This analysis also includes an assessment of a fund’s fee level relative to similarly distributed peers and information on the portfolio’s sustainability profile.

6. Get a fund's background check

On the Chart tab, you’ll see historical performance of the mutual fund alongside other investments such as stocks, ETFs, and market indexes. Various technical tools such as moving averages and dividends are also available.

7. Peek at past performance

A fund’s performance tables allow for a quick comparison between the fund, its category peers, and a relevant market index over multiple time periods. You can read all about it on the Performance tab.

8. Suss out sustainability

Morningstar assigns Sustainability Ratings to measure how well a portfolio’s holdings are managing their environmental, social, and governance (ESG) risks relative to the portfolio’s Global Category peer group. ESG risk considers how material ESG issues (such as resource management and labor relations) could influence a company’s economic value. If available, this section also contains commentary from the research team on how ESG components factor into the fund’s security selection process.

9. What's your risk tolerance?

Our proprietary Portfolio Risk Score gives you a holdings-based assessment of a fund’s portfolio, which is ideal for comparison against other potential investments. On the Risk tab you’ll also find standard risk metrics (alpha, beta, volatility, etc.) along with capture and drawdown ratios.

10. Get to know the portfolio

Here (“here” being the Portfolio tab) you’ll find insights into important investment factors such as growth, value, and momentum.

In the Financial Metrics section, you’ll see a breakdown of the fund’s exposure to stocks with varying economic moats. An economic moat is a durable, material competitive advantage that allows a company to earn excess returns on capital for a long period of time and keep competitors at bay. Our analysts assign every company they cover a Morningstar Economic Moat Rating of wide, narrow, or none.

Don’t miss the Holdings section here, either: it shows you what a manager has recently bought or sold, plus how long any holdings have been in the portfolio.

11. See who's running the fund...

A portfolio manager has day-to-day responsibility for monitoring the holdings and executing changes, and on the People tab you can examine managers’ tenure lengths and investments in the fund. Investment in a fund helps align a manager’s financial outcomes with that of the fund investors. At the bottom of the tab, you’ll find a summary of the team’s record of voting on management and shareholder resolutions of the portfolio holdings.

12. ...and who runs the people who run the fund

The parent overview provides a holistic picture of the fund’s management company. Number of funds, asset flows across the company, and a breakdown of funds by Morningstar Medalist and Star Ratings are included. This tab features a concise visual summation of where the firm’s management lands across style, market cap, and asset classes.

To access all of these insights—plus powerful portfolio management tools—start your 7-day free trial to Morningstar Investor.