Morningstar Mutual Fund Categorization- Really?

It’s no secret that we’re not fans of managed futures mutual funds (mainly due to their mis-categorization and high fees), but we’re not obstinate. We dialed into a Morningstar webinar today regarding the vehicles to learn a little more, and were pleased to hear some blunt talk about the fee levels associated with the funds. However, when we asked explicitly what criteria was used to determine whether a fund was a managed futures mutual fund, the answer we got was that they look at the strategy, and require the product to take both long and short positions in commodities and/or securities. As in stocks, ETFs, and so on.

Ah, now we understand why funds like the Pyxis Trend Following Fund – which, per their prospectus, trades stock index ETFs – made the cut. Unfortunately, the Morningstar definition of managed futures has nothing to do with managed futures at all.

For the record, managed futures is not  individual stocks or indices. It’s not ETFs. It’s futures trading. There is a huge array of strategies out there in the managed futures world, but at the end of the day, there is one common thread: futures. It’s part of the reason that managed futures as an asset class has been non-correlated to traditional asset classes like stocks and bonds. These funds can call themselves whatever they like, but at the end of the day, a name will only get you so far. The presenters stated that there were more of these funds coming down the pipe, but we have to wonder how many of those will resemble managed futures at all, especially with the tense regulatory environment we see today.

Caveat Emptor, investors. Read the fine print. That’s all we have to say.

2 comments

  1. Very good point and share your frustration in finding proper managed futures strategies in mutual fund form. My interpretation was that the Pyxis fund didn’t fit into a certain style box (I have an issue with that as well) and thus an analysis of the risk/returns pointed it to the Managed Futures space, even though they do not invest any money into futures contracts. As an RIA wanting exposure to managed futures the process is arduous and frustrating. Continue the great research.

  2. Very nice post of mutual fund. That is very good to find the best mutual fund company. Thank you for sharing.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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