An Analysis of Morningstar's Classification of Small-Cap Mutual Funds

Brian R. Bruce, ed., A Guide to Small-Cap Investing, New York, NY: Institutional Investor, pp. 69-74, Spring 2003

6 Pages Posted: 2 Jul 2008 Last revised: 26 May 2015

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

Carl A. Scheraga

Fairfield University - Charles F. Dolan School of Business

Date Written: May 24, 2015

Abstract

With respect to its small-cap funds, the Morningstar category rating is preferred to the Morningstar star rating with respect to the preponderance of its associations with both the Jensen Alpha and Sharpe Index. But, neither captures the entirety of the Sharpe Index and, especially, the Jensen Alpha to assess fully composite risk/return performance. This is especially true for the Morningstar star rating. The Morningstar category rating is thus preferred to the Morningstar star rating as a composite risk/return measure of fund performance. But, neither rating variable is generally associated with differences in investment style variables that profile value and growth. And, neither rating variable is associated with beta and R2 performance variables.

Keywords: mutual funds, Morningstar small-cap funds, star rating, category rating, risk/return performance, investment style, performance clusters

JEL Classification: G2, G23, G28

Suggested Citation

Haslem, John A. and Haslem, John A. and Scheraga, Carl A., An Analysis of Morningstar's Classification of Small-Cap Mutual Funds (May 24, 2015). Brian R. Bruce, ed., A Guide to Small-Cap Investing, New York, NY: Institutional Investor, pp. 69-74, Spring 2003, Available at SSRN: https://ssrn.com/abstract=1154150

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742
United States
202-387 2025 (Phone)

University of Maryland - Robert H. Smith School of Business ( email )

5901 MacArthur Blvd NW 124
Washington, DC DC 20016
United States
202-236 3172 (Phone)

Carl A. Scheraga

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

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