Skip to Content
Fund Spy

It's the Witching Hour for Some Funds

Turning three can be a make-or-break moment.

Mentioned: , , , , , , ,

Especially for a newer fund, no one milestone seems as important as its three-year anniversary. It's the earliest point at which a fund can earn a Morningstar Analyst Rating, but it means much more than that. Many institutional and individual investors require at least a three-year track record before even looking at a fund manager or strategy. So, funds' three-year total returns, rankings, and star ratings can mean the difference between economic viability and futility. It's no wonder then that many fund companies emphasize portfolio managers' three-year records in their compensation plans.

The Three-Year Period
For investors evaluating a fund, the three-year return figure is hardly the be-all and end-all. But it's not insignificant, either. Three years is a reasonable amount of time for a portfolio manager to begin demonstrating investment acumen or lack thereof. A three-year record also can help investors set rational expectations for a fund and assign it an appropriate portfolio role.

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