Help Morningstar Name Its Allocation Categories
Changes to the allocation categories mean new names are in order.
We updated a few of the allocation Morningstar Categories in April 2022, and we'd love your help to decide how (or if) we rename the categories to better reflect their new form.
The categories in question are the five U.S. allocation categories below, which are named after the expected equity weighting of strategies within the given category:
Mutual funds, exchange-traded funds, and other investment strategies in these categories generally have relatively static asset allocations. They include straightforward 60/40 equity/fixed-income balanced funds like Vanguard Balanced Index (VBINX), which is housed in the allocation—50% to 70% equity category and has a Morningstar Analyst Rating of Silver.
They also include funds offered in series, which are often named after an indicative risk tolerance level, such as MFS Conservative Allocation (MACIX), MFS Moderate Allocation (MMAIX), MFS Growth Allocation (MGWIX), and MFS Aggressive Growth Allocation (MIAGX) (in the allocation—30% to 50% equity, 50% to 70% equity, 70% to 85% equity, and 85%+ equity categories, respectively).
While we primarily consider equity allocation when categorizing funds, in April we started incorporating the Morningstar Portfolio Risk Score. This method more systematically considers the increased risk found in nonequity asset classes, such as commodities or high-yield fixed income.
As a result, funds like Neutral-rated Columbia Income Builder (RBBAX) moved to the allocation—30% to 50% equity category from the allocation—15% to 30% equity category. Though the fund's average three-year equity allocation stands at about 20%, its 45% combined exposure to high-yield and nonrated bonds within its fixed-income sleeve markedly increases the fund's riskiness, particularly when markets fall. In contrast, the typical fund in the 15% to 30% equity group had less than a fourth of its fixed-income sleeve allocated to similarly rated bonds.
With funds now sometimes out of sync with the equity allocation indicated in the category name, this seems like a good time to consider renaming the categories. Here's one set of names that we've been trying out:
And here's another:
The variations are potentially limitless, and we can see pros and cons for all of them. Most important, though, is understanding what would be most useful and intuitive to investors like you.
Thanks in advance for your feedback! We'll make sure to follow up with results in a future article.
Janet Yang Rohr, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.