Good Ethics Is Good Business for Funds
Morningstar study finds that funds with high Stewardship Grades gain assets.
If your fund earns a top Stewardship Grade from Morningstar, chances are its assets have grown substantially in recent years. We recently looked at funds' estimated net asset flows by Stewardship Grade and determined that funds that received A grades as of year-end 2007 typically saw an increase in assets of more than $800 million since 2004. Meanwhile, funds receiving D's and F's have had, on average, shrinking asset bases.
These asset trends certainly suggest that shareholders value good stewardship when deciding which funds to own. The results are somewhat skewed by the fact that some of the industry's largest offerings earn A and B Stewardship Grades from Morningstar. The lineup from the American Funds, which have earned mostly B Stewardship Grades, has attracted billions in new assets in recent years. The Vanguard funds--mostly A and B stewards--have also been big sellers, as have the Dodge & Cox funds, which earn A grades. All of these organizations have built their businesses around a theme of treating shareholders well.
On the opposite end of the spectrum, the funds earning lower Stewardship Grades are finding it hard to raise assets. Many funds earning low grades from Morningstar have seen redemptions from shareholders in recent years, including offerings from Invesco AIM, Federated, and Putnam. (To find out which funds earn top--and bottom--Stewardship Grades, Morningstar.com's Premium subscribers may click here.)